Strategy In Action

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Oliver Wight Strategy In Action

Contents

Perfect Vision page3

Lloyd Snowden shows how to make strategy work in practice

Market Making page6

Stewart Kelly argues the case for an integrated marketing strategy

Decisions Decisions page9

Stewart Kelly looks at putting strategic plans into action

Driving the Action page12

Andrew Purton examines the process of Integrated Business Planning

Establishing a strategic direction and then deploying it, is fundamental for any company; easier said than done? In these four articles, experts from Oliver Wight explain that there is a logical sequence to follow, which involves setting a vision for the business, a set of robust management processes and, crucially, the engagement of people throughout the organisation.

Strategy In Action

Oliver Wight Strategy In Action

Give a man a fish and youfeed him for a day.

Teach a man to fish and you feed him for a lifetime...

Oliver WightOliver Wight are leading business improvement specialists who educate, coach and mentor people to lead and sustain change on the journey to business excellence and outstanding business performance. The largest worldwide consultancy of our type, we have offices throughout Europe, North and South America and the Asia Pacific region.

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Oliver Wight EAME LLPThe Willows, The Steadings Business Centre, Maisemore, Gloucester GL2 8EY, United Kingdom

Strategy In Action

Were you involved in your company’s last strategic planning meeting? No prizes then for guessing the answer to the question “Did the earth move

for you?” Strategic planning should be an exciting way of pointing the whole organisation towards a practical way forward. Sadly, the reality for many companies is that it is an academic exercise carried out behind closed doors and it is completed to satisfy a corporate HQ deadline. It is quite detached from the budget, the business plan, and from day-to-day events and management. It is rarely owned and has little relevance for line managers throughout the business. No one expects the strategic plan to actually happen. Excellent companies take this fundamental business process seriously, seeing it as the vital link between the common business processes (managing new products and services, managing demand, and managing supply). They see it as the link which ensures that the short-term actions and improvement plans you make, are selected and directed to take you on to a better future, acting as the bridge between boardroom aspiration and the reality of daily work throughout the business. Consider what will happen if you leave Birmingham on the way to Edinburgh without knowing that Edinburgh

is your desired destination; without knowing in which direction it lies; without knowing the different ways of getting there (with costs and timescales); without having enough money for the journey and without knowing where the pit-stops are (yes, I hired a delivery company like this too). Add to this scene: no knowledge of why you were going there; what you were to do when you arrive, and what was in the whole exercise for you. This is laughable, of course, but it is even more so if we fail to ask and answer similar questions for our business. Are you clear where you want your company to be in five years time? In reality, in that timescale it can be anything you want it to be, provided you want it badly enough. The biggest barrier to our future is in our minds and behaviours today. It is our reluctance to come out of the box of our current business and practices. Think of giants today who did not exist five years ago. Would they have succeeded without a vision and plan? Also, think of the giants of five years ago who do not have an independent existence today. How realistic and ambitious was their game plan? We have to face the simple fact that if you don’t know what you want to be, you are very unlikely to be it. It is no coincidence that the longest-running self-assessment tool for business

excellence (the Oliver Wight Class A Checklist – now in its sixth edition) has Strategic Planning as its opening chapter and quickly gets into the adequacy of the company vision as the catalyst for thought at all levels of the organisation. Without a clear vision for the future to aim for, the strategic plan and all that follows, has no direction and becomes relatively meaningless. By ‘vision’ we do not mean the poster in every room which boldly states that the company seeks to be number one in its market, having excellence in all processes, with happy customers and employees. Vision means that we have a picture painted in words – a strap line that every employee can readily recall, which succinctly describes the business we want to become – and reminding them of our ‘mission’ – embracing markets, customers, geography, products, services, scale, performance, people, behaviours, cultures etc. It is the simple and clear statement that can be understood from top to bottom of the organisation, which will prompt a team leader anywhere in the organisation to think about his or her contribution to making it happen. It is the statement that can spread belief and excitement through the organisation for an achievable future, yet with sufficient ‘stretch

goals’ to cause behaviour and cultural change. But there is a huge difference between a vision and a dream. We must ensure that our plan has sufficient reality for people to believe it really is possible. The company’s strategic plan is the plan of how we get from where we are today to the vision embracing every part of the company – individually and as a co-ordinated whole – within an achievable timeframe. The Class A Checklist gives us more clues on how we might go about defining the plan and setting excellence criteria for this process. It expects to see activity; to understand the current business and how well it performs; to analyse the external environment and our own capabilities; to develop a clear case for change; to set clear plans in every part of the business to get from where you are to where you want to be; and to have clear milestones and goals. More importantly, it insists the strategy is driving and integrating the business plan and budget as part of the top-down message, and of course that the company ensures everyone in the organisation understands and feels a part of the ongoing change and adventure. If this all sounds like common sense to you, that’s because it is. Let’s take the criteria one by one and see how well they stand up individually, and how much more when they are taken together.

Strategic PlanningOliver Wight Strategy In Action

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Perfect VisionStrategic planning? Lloyd Snowden asks, how do you expect to get anywhere, if you don’t know where you’re going?

Lloyd Snowden Partner Oliver Wight EAME

“Think of the giants of five years ago who do not have an independent existence today. How realistic and ambitious was their game plan?”

Do we really understand our business and how it perceived in the market place? It is so easy to believe our own propaganda and PR. How well do we understand our competitors and how different they might appear to our customers? How well do our capabilities and competencies compare with our competitors? Do we really have a grip on the world around us? How do local and national issues impact us? Increasingly, how does Europe impact you and what will the euro do for you? Have you a plan for exploiting the impact of the technology revolution? How will our markets change in size, requirement and in pricing, and how are we structured to take advantage of change? The case for change is a fundamental need. How sad that in an age where people respond more than ever to excitement and challenge, so many case studies and so much perceived wisdom promotes that you must have a burning platform to manage rapid and effective change. How long-lasting can any change programme be if it is born and justified through fear? How can you sustain this when the fire is visibly put out and how can we promote any long-term thinking when from the top down we are joining in the fire-fighting? Without a clear and well-communicated vision you may need the burning platform. But the better companies with the fastest and most consistent pace of change create real excitement. Start planning early enough and your competitors will have the burning platform as they try to catch up with you. This all sounds great but how do you make a long-term plan work? How do you sustain people enthusiasm and energy through a five or 10 year plan? The answer is of course, that the strategic plan must identify and prioritise the bite-size chunks of activity that each pay their way and give rapid gains, but which together carry you to a new horizon. Think of it as the jigsaw puzzle where your vision is the picture on the box and the improvements and projects in every part of the business are the puzzle pieces. Where in your business are your corner and edge pieces, which are easy to see, go quickly in place, and provide a much-needed structure for everything else to follow? And as in a jigsaw, do not be blinded by clever technical words and science. Leave the sky until later when it will be much clearer and more obvious why you need it and where it fits in. Success breeds success. Make sure that your plan gives early gains from early actions,

which are the foundation and framework for the next actions and gains. We have to be sure that our actions and steps do add up and take us forward. But while we work on taking the big picture forward, we must perform and make good money today. There must be a demonstrable link between our strategic plan and activity and our day-to-day plan and control. Sales and Operations Planning (S&OP) is the process that the best companies use to manage every month, so that everyday business is under control. It is the one management process that ensures we have one set of figures in all parts of the company, with one clear set of priorities across its processes and functions in new product introduction, demand management, and management of all supply. Where is the value of any of this if our people are not informed, educated, and fully engaged in the plan? Our business gains will come from changing our people’s behaviour through improving their understanding of what is possible. We happily spend a fortune on new systems and re-engineering, yet so little on educating our people to ensure that they truly do understand what we want to happen, and how they can contribute. Later in this publication, we will look more closely at three vital parts of strategic planning: firstly, the marketing strategy – which determines the products and services we wish to sell and the customers to whom we wish to sell them; in which markets and countries. It starts by understanding the market and its direction, and where in it we want to be placed. After that, we will consider operating strategy, which sets out how we will operate to meet the marketing plan most effectively; where we will meet the customer, our people and investment strategies; the role and focus and maturity of our plants; and of course the design of our supply chain. Lastly we will examine the role of S&OP (or Integrated Business Planning as it is known these days) in integrating the business, as the bridge between our long-term plans and our day-to-day activity, and its value in keeping the business under control as we drive it forward. So, do you know where you are going? If not, I think I know where you will end up. Do you know how and when you will get there? If not, I suspect someone else will get there first. Do you know how you will win in that new competitive world? If not, you will probably lose.

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Oliver Wight Strategy In Action Strategic Planning

“We have to face the simple fact that if you don’t know what you want to be, you are very unlikely to be it.”

Oliver Wight Strategy In Action Marketing Strategy

Market MakingI n one of the world-famous ‘Dilbert’ strip cartoons,

the bespectacled hero is sent to the marketing department on an assignment called ‘job rotation’. He

has no idea what the marketing department does: all he knows about it is that they wear flash clothes, drive snazzy cars and have something called an ‘expense account’. True to his mental image, when he arrives he is greeted by an attractive female wearing a toga and is advised that there is a ‘two-drink minimum’ in the department. Dilbert’s is a ridiculous picture, of course – but, if you ask most people what their understanding of marketing is, then the answer is going to be much closer to a definition of the sales function than it is of the broad and complex reality. It’s not unknown for salespeople to disappear from the office for a while and then, on their breathless return, announce that they’ve secured a fantastic deal that will keep the presses at the factory turning and the employees in work. Rather than being

hailed as a saviour, the salesperson will quickly learn that’s where the problems start. Is this a new market? If so, has it been thoroughly researched? What are the special requirements – legislation, transport, local content, if it’s somewhere else in the world? When is delivery and what is the expected lead time? How does it fit into existing schedules? Is the supply chain geared up for the additional demand? The poor salesperson may feel unloved after that little lot but he or she will be in no doubt about one thing: marketing is more than a good ad campaign. On the other side of the desk, the production and operations people may well feel they’re too busy chasing their tails and getting orders out to spend time answering questions about capacity, inventory, lead time and stocks. If they think anything about it, they’ll be wondering why the pretty boys in marketing department want to know.

A marketing strategy isn’t just a nice idea. It should be an integral element in business development – assuming everyone knows what ‘marketing’ is.

the marketing role has to be integrated with business processes. While the auto industry’s attempts at multi-OEM trading platforms may have effectively collapsed, the Internet is still in the process of dramatically changing the way business is done. Consumers can (and do) switch between brands at a moment’s notice. Consider banking: 20 years ago – or even 10 – changing bank accounts was something not undertaken lightly. Whoever could capture a customer as a student was likely to have them for life. Today, banks compete aggressively for customers, who can change their provider at midnight, on-line. Purchasing departments can use the Internet to find a dozen or more suppliers of commodity products – and that’s just using the search engines. Set up an on-line trading method and the number and choice will be higher – and they’ll all be pre-qualified. For the company in the supply chain, understanding the customer, the marketplace and meeting special requirements as a matter of routine are all pre-requisites. But the good news is that the very tool that raises the stakes – the Internet – can make doing so a lot easier. It’s a bit of a paradox but the fickleness of the marketplace has tended to place a higher emphasis on brands. When choice is so great it becomes confusing, the customer wants to find something they know. Brands give comfort in an alien environment. They may be a symptom of ‘Coca-colonisation’ – the erosion of the very cultural differences that make other countries interesting – but the tourist will be comforted by seeing a recognisable name in a foreign country, whether it’s McDonald’s, Marks&Spencer or Dell Computer. Suppliers, too, can strengthen their position in the supply chain by making their name synonymous with particular attributes. The question then becomes: what values does the company wish to be identified with its brand name? What is your company’s niche and what does it do better than anyone else? Why do your customers value your services? Micheal Treacy and Fred Wirsema, in their book ‘The Discipline of Market Leaders’ propose that successful companies excel at delivering one type of value to their chosen customers. In so doing, they become identified with it. The challenge is to identify that specific value. It may be operational excellence – in which case, the product range needs to be narrow; it should be presented in a uniform package and should be delivered efficiently. That’s likely to be the focus of a company that’s involved in a price-competitive market, one that behaves in a commoditised way. It will typically source from the Far East and will have an outstanding supply chain. If the focus is customer intimacy, then the marketing emphasis will be on service and collaboration. The value proposition will be based on an extensive product range, innovation and flexibility. The supply chain will be able to respond rapidly – which means that low-cost sourcing is unlikely to be the answer. In the case of product leadership, the

priority will, clearly, be about rapid adoption of new technology, seeking first-mover advantage and aiming the sales effort at early adopters. That is not to say that any one area should be pursued and all others dropped. It’s a question of prioritising within a balanced scorecard. Price competition is a major factor in the auto industry, and a car is, in the end, a means of getting from A to B – so it’s a commodity. But the market doesn’t always behave like that. Since it was taken over by VW Group, Skoda has improved its brand perception no end. The new range may be just as good as – or even better than – offerings from BMW. But BMW has brand value among consumers and customers are prepared to pay more for its products. In the fickle and fashion-conscious mobile phone market, consumers will buy a product from Nokia, Sony Ericsson and Motorola before they’ll risk something from a new name, especially when new technology – like G3 – is involved. They do so because they trust them. Brand awareness and perceived value binds customers to the provider, which means more stability and even – in some areas – the opportunity to charge premium prices. But it isn’t enough on its own. The company has to be able to deliver, so supply chain excellence is necessary, too. First mover advantage won’t last long and price becomes an issue quite quickly. Getting the brand into the customer’s consciousness costs money, in advertising and sales effort – those who rely on word of mouth to spread the message of product excellence will soon find that the advantages of this method of communication are greatly overestimated. The function of marketing has to blend sales, manufacturing, planning, logistics and marketing itself into a form that will work with customers and suppliers to deliver products so as to maximise business benefits to the customer and ensure a strong marketplace brand presence. That’s the strategy. Its delivery depends on accurate forecasts, which will be based on a realistic and robust analysis of the company’s position in the market. That will identify value and volume, which will, in turn, identify the gaps to be exploited with new products or expanded sales of existing products, whether achieved through price competition or additional promotion. The reality of shorter product lifecycles means that new products have to be developed quickly – and that raises the pressure to eliminate waste from the process. A successful marketing strategy needs to focus on brand development to strengthen customer loyalty – but it’s not just about advertising. The structures behind the public face – supply chain, packaging, operations and logistics – all have to be aligned to deliver. That being the case, there is no reason to argue for traditional demarcation lines between business functions. All are crucial, all need to understand each other and the common ground is that single word with a huge breadth of meaning – marketing.

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Oliver Wight Strategy In Action Marketing Strategy

In some ways, marketing is a victim of its own failure to communicate what it is actually about to other parts of the organisation. Marketing strategy covers (or, at least, impacts on) all aspects of the business. At the delivery end, it deals with creating demand among customers for a product; maintaining existing customer loyalty; timing release of new products in such a way that it doesn’t reduce current sales and leave stocks sitting on the shelves. Understanding and developing technical and production resources are essential to the delivery end. Financial and management accounts are vital tools, in order that the products selected for production are those that meet the corporate financial and development strategy. On the supply side, marketing needs to know what lead times and prices are, and the terms that suppliers are on. The cheapest isn’t always the best, nor is the quickest delivery. What about product lifecycle? When should the

upgrade or replacement be introduced? And what about packaging? Does it attract customers or bore them to tears? Does it meet environmental standards? Getting all the ducks in a row is what marketing is about – and that’s why it has to be an integral part of business strategy. Product lifecycles are getting shorter and shorter; lead times are being squeezed. Getting to market sooner than everyone else gives an advantage – if the launch campaign is right, the timing is right and the style is right selling new season swimsuits in the middle of winter will certainly give a lead against the rest of the market but you could go bust before the first one is bought. For example, offering something so novel that the market is wary can equally spell disaster. Although maybe not widely appreciated, these aspects are pretty well widespread already but the last few years have brought new challenges. In order to deal with them,

“Getting the brand into the customer’s consciousness costs money, in advertising and sales effort – those who rely on word of mouth to spread the message of product excellence will soon find that the advantages of this method of communication are greatly overestimated.”

Stewart KellyPartnerOliver Wight EAME

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Operating Strategy

T he rapid and alarming spread of foot and mouth disease showed us all the incredible distances our livestock travels around the country and around

Europe on its way from field to frying pan. In industry we know better of course. We understand the cost of travel, in money and time. We know how to design effective supply chains, how to seek gains through process acceleration in all business processes, and how to get the right structures of facilities to service the market we seek... Or do we? I regularly read of major companies making decisions on the future of plants by gambling on currency. And how was your last motorway journey? How many lanes were filled with large trucks delivering what to where, with ever increasing amounts of urgent and emergency trips? Perhaps we are not so good after all. If you had a blank sheet of paper would you have the operating structures that you have now with the same facilities doing the same work in the same place? In the first two articles in this publication, we have discussed the need for a business vision. A picture

painted in words of the business you want to be and how you would like it to perform. Then we looked at a market strategy and plan, to be clear what products and services we wanted to supply to meet the business plan and the customers and markets to which we wanted to supply them. In this article, we move from designing the supply chain to the structure and role of facilities, from investment strategy to make/buy policies, and to the use of maturity mapping to decide which few improvement projects will come first as we pursue our operational strategy for the best service, quality and, of course, to make a good return. These pictures of our future business and its place in the market are fundamental inputs to a strategic operating plan, which must precede our practical improvement plans if we are to be sure that every initiative is another step towards our vision. As we set out and implement our operational strategy we will make some huge and unforgiving decisions and so our first lesson is to ensure that the inputs to the plan are good enough to support the decisions we will make.

Decisions DecisionsStewart Kelly looks at the decisions that need to be made to put the strategic plan into action

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“We will maximise our return on investment by focusing our future developments towards our higher added-value activities.”

Oliver Wight Strategy In Action

In each product or customer group, we must be clear that we have an agreed corporate view of the size of business we aim to be it. The growth of groups of products and services (especially where new technology may need significant investment); the customers and geographies we will serve; and the service levels we must sustain to be a long term winner. All of these will have an impact on the design of the best supply chain and will drive our structural and investment decisions strategically, rather than from currency fluctuations. So how many product groups do you have? Too many will ensure micro management, while too few will encourage decisions based on a one size fits all approach to investment, to processes systems and tools, and to supply chain design. This latter is the world of compromise where our structures and ways of working are so unfocused that we end up as jack of all trades but not quite good enough at anything to consistently win. The matrix in Figure 1, first used by Hayes and Wheelwright, causes us to think about operating structure. Whether you are at group, regional or local level of your business, plotting your current activities on the matrix and how they will move over five or 10 years leads to some profound questions about the future shape of your business:• The focus and role of facilities etc• Where we might choose to meet the customer• How we maximise value-add and service for the customer to become increasingly indispensable• Our approach and ownership of distribution

To use the grid we work in natural product or customer families, for each of which we will design, plan and manage an extended supply chain. Such families will reflect sales value or volume, as well as service and logistics requirements. They will also highlight loss-makers and breakeven products for decision. For each family we design the extended supply chain to give the required service levels at minimum cost and stock. We lay out the total process (Figure 2) from raw material

to end consumer (forest to toilet) and ask ourselves key questions about the way we will do business in the future. For instance:• In the chain what do we own and who owns the rest? • What are the profit margins at each step? • Where is there large investment in stock and what is our stocking policy? • Which steps do we control and which would we like to control.• Where might we target eliminating waste in the whole chain or seek to add more value for our business?

The discussion here is to understand the opportunities in the chain and our desired position. Look at the brewing industry for examples of major companies repositioning themselves from low margin brewing to much higher value-added consumption. If our families are right, each supply chain should be relatively straightforward, although as with all families, our supply chain may seem complex. From our supply chain design, we plan where in, an ideal world, we would best place facilities to balance production costs, distribution costs, and service levels, and also in a practical world, how close to that ideal we can get in the next five years. Well-focused facilities always outstrip non-focused facilities in service quality and in cost performance. But note carefully that the basis of focus we have been building is of business style in Hayes and Wheelwright terms, rather than the paradigm of process technology much loved by production engineers and capital engineers who dominate the thinking, planning and layout of our facilities. Imagine the disruption costs of stopping a car component line making parts for the Ford Focus to produce a small batch for Rolls Royce. Could we possibly charge enough for the Rolls Royce part to pay for the disruption? Imagine the planning and support processes needed when we fill a simple volume unit with small batch work in spares or specialist work. Facility roles and focus are vital to performance.

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Figure 1 Business Styles

Figure 2 Steps in the Supply Chain

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Oliver Wight Strategy In Action Strategy

I n this publication we have firstly described the role of vision and strategy; then the importance and intent of the marketing strategy and its impact on

supply chain design; and finally, the operating strategy to define and deliver the optimal business structure, around which competitive supply chains will be built. In this article we will describe the company management process that ensures operational plans are managed from an integrated business perspective, consistent with and monitored against strategic direction, and optimised in response to change and the latest business projections. The common dilemma for companies who have invested significant time in developing a meaningful strategic plan is how to ensure it truly guides the business to a new future rather than the once-per-year corporate exercise. Half yearly or even quarterly reviews are largely ineffective as they still pigeon-hole strategy as a periodic event, which can be picked up or put down as events come and go. Instead, to make strategy real, the business objectives, focused programmes and short-to-medium term milestones must be integrated within the data set generated to support the monthly business review.

A monthly cycle of business reviews is essential to manage change occurring to our business, both external and internal. Due to market place dynamics and fuelled by technology, change is occurring at an ever-increasing rate. This pace of change has driven recognition over the past decade that the traditional management methodology of monitoring actual performance against a pre-determined budget, set many months prior, against assumptions that may no longer be valid, is an inappropriate management mechanism to optimise business performance. Whilst businesses will still be held accountable by their investors for delivering commitments on profitability and shareholder value, it is fundamental that the business be managed based on prevailing conditions and latest assumptions. To continue the analogy in the first article, if we decide to fly from Birmingham to Edinburgh, you can be sure that the pilot will constantly monitor wind direction and speeds and adjust accordingly. Hence the need for a sales & operations planning (S&OP) process to ensure we understand, and monitor against, our stated direction, whilst recognising and adjusting for changes in economic, market and business conditions.

Driving the ActionAndrew Purton examines the process of Integrated Business Planning, which helps strategic planning work in practice

This takes us to investment strategy. Over the next five years how much money can you expect to be available for capital equipment? For most of us, probably the same as the last five years. But if you had a cheque for this full amount today what could you achieve. Brainstorm and quantify the ideas to create, meet and beat the vision, and prioritise the list by the impact of each proposal on your added-value performance. We will maximise our return on investment by focusing our future developments towards our higher added-value activities. We must spend equal time on our investment strategy for our people, determining the core competencies that will add most value in the future. We must plan and act as carefully in the investment in our people as we do our facilities and equipment. Our competitors can purchase the new processes and systems that we plan. It is what we do with them that counts. Our people are the ultimate differentiator and we ignore their education and development at our peril. If we cannot afford to invest in achieving ‘World Class’ in any part of the business in the next five years, we will not be fit enough to win the race. Make/ buy decisions naturally follow investment strategy. If we will not be good enough we must seriously consider withdrawing from this activity and buying from someone who will invest and who can grow and develop with us. Make/buy decisions are strategic, as is sourcing strategy and ultimately supplier selection. In key commodities the extra penny saved today will cost you pounds tomorrow if your supplier cannot develop and grow with you. Given our defined structure we must get each facility we retain up to the highest level of performance. For most companies to be the very best in their industry is a long journey, which will need a long-term improvement plan showing how we get from today to our vision, identifying and prioritising individual projects for both payback and fit. The maturity map (fig 3) helps us with this prioritisation. First we must tackle those issues which cause us to spend so much time fighting fires. The top four drivers of reducing unplanned events are• Sales and Operations Planning to ensure all parts of the company have the same agenda

• ISO 9000 and ISO14000 to ensure we have consistent processes for work• Eliminating breakdowns in every business process• Setting and maintaining standards, giving people formal ownership of work.

With the foundations in place, we eliminate the inherent failures in our processes using continuous improvement to solve root causes of common failure, stretching mean times between failure to new levels. More sophisticated control is needed to achieve failure levels low enough to automate safely. This logic applies to every process in every part of the business. Doing first things

first represents the fastest route to improvement and the most rapid payback for our efforts. So how mature are you? How in control are you? How much of your working life is spent fighting fires or reacting to events rather than being in the driving seat? But we still have to make it happen. We must perform today and also build a new tomorrow. The following article will tell you about the vital role of the Sales and Operations Planning process in integrating the functions and company processes, to ensure the integration between the board and the shop floor, and for that vital daily management and control which assures that we will meet our short-term targets whilst building our way towards a new future.

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Oliver Wight Strategy In Action Operating Strategy

Figure 3 Integrating the Business – Maturity

Stewart Kelly Partner Oliver Wight EAME

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Strategy

understanding, leading to an assessment of the most likely view of demand and agreement of the ‘consensus, unconstrained demand plan’. In a mature process this will be qualified by vulnerabilities and opportunities to provide upside and downside scenarios to review and all within the context of strategic direction and medium-term ‘stretch goal’ setting. The review will approve and issue this (updated) sales plan, identifying change and issues arising. Supply Review: We may have an operational strategy but is it clear and well-communicated? Are the actions planned and reviewed? Is the capital being deployed? Is the supply chain performing from supplier delivery, through conversion (where appropriate) and master schedule performance, with clarity on the demonstrated performance of our plants and key suppliers? In essence, are we clear about the supply chain ‘capability and flexibility’, the underpinning assumptions and the improvement plans, and will these deliver the strategy? Following the previous two reviews, what is the impact on the supply chain from changes in demand and the scope and timing of product development plans? Are there material constraints in supporting the new demand plan and is there sufficient resource? What are the options and alternative supply plans? What are the trade-offs between cost optimisation, maximising supply (to meet the demand and product management plan), supply chain confidence and credibility (if constant change) and customer service capability? Each of these business reviews must address a business agenda and planning horizon sufficient to cost-effectively manage resources and other business issues within the framework of the strategic and business plan. It is for this reason that we expect companies to operate with a horizon in the range of 18-36 months (depending on circumstances). Most businesses unfortunately focus on the short-term where reactionary solutions carry a huge cost premium. Integrated Reconciliation: Change would typically have been identified in all of the preceding reviews – product management, demand and supply. A reconciliation process is required to address the issues arising both in optimising the business and managing the gap versus business strategy and expected business performance. The integrated reconciliation needs to get beyond the numbers to comprehend variability and the key business levers and forces at work. Moreover, if this is truly a management process then the financial impact of change and the latest financial view must be clearly identified, with implications understood, as a key input to decision making. There is a further element to be reconciled and that concerns the resource to support company-wide

projects, to ensure sufficient visibility of these programmes and to consider the impact, and trade-offs, on resource and operational plans as we run through this monthly cycle of business reviews. Integrated Reconciliation is a continuous process; it works the issues arising from each of the business reviews that have a broader business impact – and it seeks resolution, not simply issue-identification. The outcome of this process is a ‘Reconciliation Review’ where the principle purpose is to understand the integrated picture and the real management issues, so these can be filtered out, developed and made the focus of the ‘Management Business Review’. Such management issue are presented to the senior team succinctly, with options and recommendations, and within the context of the strategic framework and business commitments, all defined within the ‘central starburst’. Management Business Review: Unlike many so-called S&OP meetings where a pack of spreadsheets are laid before the management team who are then asked to play “hunt the numbers”, this final step must be designed, as the name suggests, as a management review containing management information. Such an agenda will review key performance indicators to show how the business is performing and progressing towards the vision and strategy. It will show business trends of operational and financial performance, highlighting any gap versus business and strategic plans. It will present issues arising, together with the underpinning understanding of assumptions, vulnerabilities and opportunities, which have either been resolved at prior steps or require a decision based on the recommendations from Integrated Reconciliation. It will approve the plan that will communicate clear visibility for the integrated set of numbers driving the integrated business. Hence, Integrated Business Planning is a monthly rolling management process that seeks to optimise the business whilst monitoring deployment of the strategy. It provides a fully effective means of controlling the business and managing in an integrated way, breaking down silo mentality, aligning performance measures and accountabilities, and driving a new management style which will become the benchmark for team-based working throughout the organisation. Integrated Business Planning provides the forum for ensuring the strategic plan is the driving mechanism for the business and hence the bridge between strategy and operational decision-making. So, do you know where your business is going? If you do, Integrated Business Planning offers you the most effective management process to get you there, faster, to deliver real competitive advantage.

“Integrated Business Planning is a monthly rolling management process that seeks to optimise the business whilst monitoring deployment of the strategy.”

13

Oliver Wight Strategy In Action

Readers must take care with the S&OP process label. There are many thousands of companies who operate “sales & operations planning” but who treat the process merely as a middle management, demand versus supply, quantity balancing exercise.Whilst preparing this article I have, today, seen sales and operations planning described as “aggregate/volume planning for the supply chain.” This is a common view put forward by many consultancies. However, it totally misses the power of this process to provide the link back to business plan and strategy and hence a fundamental management process... not just for the supply chain. So you can see that S&OP, like so many other management labels, is open to huge variation in interpretation, and it is for this reason that we decided to transition the terminology from S&OP to Integrated Business Planning – a far more appropriate description of this crucial management process and one which increasingly recognises the growing ambition to deploy it from a strategic perspective. The diagram below shows the elements (sometimes referred to as ‘the 5 steps’) that will usually be present in the process; however, in more complex, typically matrix, businesses this simple representation must be adapted to reflect the unique characteristics, accountabilities and structure of that type of organisation. Process design will therefore be specific to the business but will be founded on the fundamentals that follow.

Strategic context and business fundamentals are defined in the central ’starburst’, around which the process cycles each month. If the process is to be meaningful as the business management process for the organisation, the strategic and business fundamentals need to be clearly

articulated – vision, mission, value proposition, supporting strategies, shareholder commitments, competitive priorities, business scorecard etc. Often there is work to be done here to ensure these things are clear and that they provide guidance to the process design, as well as the correct focus for each of the business reviews. Product Management Review: So, we have a product strategy but is it being deployed in a timely and consistent manner with commitments made and other actions or changes taking place across the business? Do we have effective product/brand portfolio plans? Are the development projects happening on time – whether new product development/introduction (NPD/NPI), product change, marketing promotional activity or product discontinuation? How about SKU rationalisation to ensure a balanced and profitable portfolio that is not draining the business through ‘complexity’? Are there requests for change and what is the impact of that change? Is there sufficient resource to support all active projects? When will each project be complete and hence available to the market place? This can be a dynamic environment where uncertainty exists, change is rife, demonstrated performance may be difficult to determine, and resource is not well balanced. Hence it is important that project progress, change, authorisation for new projects and initiatives, resource management, readiness for launch and delivery of the strategic plan are all reviewed monthly; and that decisions are taken to recover, rebalance or reprioritise, with issues arising. Fundamentally that a valid, achievable, (revised) plan is agreed and published (within the process) to ensure the demand plan, supply chain plan and/or business plan implications are communicated for resolution in later steps in the process. Demand Review: We may have a market and customer strategy but demand data can be highly volatile. Demand will change from period to period influenced by economic, industry and market forces, including growth, inflation, exchange rates, consumer confidence, competitive pressures, changing promotional activity, market size, market share and availability of new products, as well as past performance of the supply chain generating improved or reduced customer satisfaction. We need a process to assess our forecasting capability and sales planning performance and to use this information to generate the latest view from marketing and the sales force, underpinned by statistical projections, both in volume and revenue terms. Assumptions must be explicitly documented thereby providing visibility and

Andrew Purton PresidentOliver Wight EAME

Integrated Business Planning

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– Chinese proverb

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