In format ive gu ides on indust ry best pract ice
Inspiring
Business
Performance
Integrated Business Planning in
Developing Markets
“Managing volatility to deliver
strategic success”
THE OL IVER WIGHT – WHITE PAPER SER IES
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So, is IBP relevant in a market that is extremely
dynamic or with high levels of political or
economic uncertainty? The answer is an
emphatic yes, and arguably more so. What is
often missed is that it is not about creating, or
being in a business environment suitable for
IBP, it is rather a matter of implementing IBP to
create a successful strategic response to existing
market conditions. Integrated Business Planning
is a formal means of reviewing the business’s
circumstances and assumptions every month
and it functions in any environment.
The key is that the organisation recognises the
volatility in its market, so it is able to respond to
that volatility differently and more successfully
than its competitors.
The process provides the leadership team
with a realistic view of where the business
is planning to be, and empowers it to make
real-time decisions to influence that position.
This enables top line growth as well as cost
efficiency, through early identification of
performance gaps as well as new opportunities.
Introduction
Managing Volatility
One of the defining characteristics of
developing economies is a high level of volatility.
Of course volatility exists in all environments,
regardless of location but is typically more
pronounced in emerging markets. How a
business deals with volatility will fundamentally
impact how it functions in its environment and
the success it gains as a result.
For the purpose of this analysis, we identify
two types of volatility: internal and external.
Internal volatility is what happens inside
the company: the things it does to itself.
Communication issues, bias in planning,
stock and data accuracy and poor process
discipline are just some of the internal issues
that can hinder a business and draw senior
management into day-to-day fire fighting
rather than focusing on longer-term
decision-making. All businesses face these
problems but good businesses work on
eliminating them.
External volatility is that which is inherent
in the market place. It is often part and parcel
of the strategic choices the business makes
when it chooses to operate in a certain market,
but can also be due to unexpected change.
Everybody that participates in that market
will share the same reality. When choosing to
operate in a more volatile, developing market,
the specific type of volatility might be unknown,
or could change, but there is an expectation
that things will be uncertain, so this must be
included in the operating model.
Monte Maritz
Oliver Wight Associate
Integrated Business Planning is fast becoming the management process of choice in
successful businesses. However, business leaders in developing markets often question
the suitability of the process for volatile, rapidly changing or high growth environments. The
concern is that for a business to implement a formal process to plan and execute beyond the
immediate horizon - often for 24-months or more - a certain level of stability is first required.
For a business to succeed in any market, it
needs the ability to manage and eliminate
internal volatility, but it also needs to manage
external volatility better than its competitors. To
A suitable strategic response
do this a strategic response must be created as
part of a company’s strategic business model.
For example, if a business is in a very high
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To understand how IBP can be implemented in developing markets,
it is important to fully understand the role of IBP. It is a common sense
process that provides the framework for effective decision-making.
It brings a truly strategic perspective and allows the executive team
to plan and manage the entire organisation over a 24 to 36 month
horizon, aligning strategic and tactical plans each month, and allocating
resources to satisfy customers in the most profitable way. Irrespective
of the nature of the market, the key to a successful IBP process is the
commitment of people and their behaviours.
Different Markets, Different Rules
Of course, because every market has different
reasons for external volatility there are
fundamental differences to operating in such
environments across the world.
For example, if the UK market grew by a
certain percentage, the impact could be easily
quantifiable, as it would be based on a typical
British consumer profile. However, growth in
an emerging market is not always so easy
to define and measure, as there is often no
average consumer to base estimations upon.
It is often a case of consumers growing into
markets. Yesterday they did not have water,
but now they have purchased a mobile phone;
or someone who couldn’t afford to buy beer is
now able to do so. These markets are growing
into value as opposed to growing on top of
value, and it is often at an extreme rate.
Growth can also be infrastructure driven.
In China or India, some of the main drivers
of growth are simply the availability of
infrastructure or access to education that didn’t
exist before. While these countries are growing,
it is from an extremely low base and they are
often only growing or changing at the pace the
infrastructure will allow. For example a company
might decide it could sell 20 percent more
product in a certain country or area but there is
no road network to deliver it. There are some
parts of the world where the only access is by
ship and then on foot.
Therefore companies in these markets must not
look only at their own growth plans, but also
review the total environment.
A further challenge developing countries face
is the nature of technology. In the West, what
is assumed as standard technology is not
necessarily available in other markets. This
is not just the old story of no broadband or
computers. It is more fundamental things:
for example, it can take three weeks to clear
a truck through some African borders. An
organisation cannot simply decide to pick
growth environment, it will need to decide
whether it invests ahead of the growth curve
to get steal a march on its competitors or bank
the growth and only put in the investment
when the market is more mature. If a business
is in a market that is volatile in terms of supply
and demand, should it invest in inventory
and be able to supply to anybody when they
request it, or should it keep inventory low and
accept that it will only make money when
the company can supply what they have
and when they can?
This is not a fluid decision. This is a strategic
response. A business should look at the
volatility in its market place and the competitive
forces and decide which strategic response
best suits its business model in order to make
money in that environment.
Once it has made these decisions, the next step
is to align the capability of the organisation.
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“Integrated Business Planning allows the organisation to execute an
effective strategic response to its environment, whatever it is, and
wherever it is in the world”.
up the phone and ask a supplier to airfreight a
delivery - that will not happen.
Crucially, IBP does not depend on
sophisticated tools to run and while
organisations need to be close to the reality
of their environment and be able to respond
to challenges they face in order to survive,
complex technology is not a prerequisite
for effective forward planning.
In high growth markets, things are constantly
changing. Because IBP requires the prediction
of demand well in advance, many organisations
have questioned how they can deploy IBP
when they have to change their response all
the time, often based on short-term signals.
In practical terms, manufacturers know for a
new product in many markets, market size
The way a business can manage these
decisions and uncertainties with IBP is
through managing assumptions. Assumption
management in a volatile environment is no
different to assumption management in a stable
environment. A business should formally define
what the rules of the game are and what things
they are going to use to plan the business - it
has to assume a level of growth and a level
of volatility. (See figure 1)
Managing assumptions is not just about
documenting what a business believes; it is
also about removing the internal inconsistencies
of what it believes. If everyone in the
organisation feels something different then
is difficult to quantify. Whether cell phones in
rural Zimbabwe or dishwashers in India, the
difficult decision is often how much capacity
to install ahead of demand. And how do
you remain consistent in your planning and
decision making?
The reality is that there is no certainty, and
we need to be open to changing our plans.
High Growth, High Change
Assumptions Management
“Use assumptions to shape the future rather
than as a basis for excuses about non-
performance.”
there can be no common strategic input, or
decision making rationale. And, one of the most
common mistakes companies make is not to
have a common set of assumptions. The sales
manager may believe one thing; the production
team may believe another, and the MD has
a different view altogether. The management
process then deteriorates into reconciling
different views of the truth as opposed to
working to a common view of the truth.
It is critical to bear in mind that assumptions
can change. They are not cast in stone in
strategic planning, to be implemented at any
cost. They are the dynamic statements that
reflect the current view. Also critical business
assumptions are not simply observations.
Good businesses manage this from a delivery
perspective, with ownership to ensure the
predictive assumptions become reality through
execution. This way deviations from the stated
assumptions can be managed both in terms of
plan changes, and activity re-alignment. And
the owners ensure this is done effectively and
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quickly, which is especially important when you
are managing the spikes and rapid changes
you might see in a volatile trading environment.
Assumptions is the compass a company needs
to evaluate where it is going. IBP then becomes
the formal, trusted process that allows informed
leaders to review them continuously,
communicate changes and concerns, and
change course as soon as they are picked up.
So in summary, define your capabilities, define
your assumptions, and use them to not just to
Fig 1. Assumptions Management
In order to manage volatility and assumptions
in developing markets there is still a
fundamental need for a formal process
that looks at all key parts of a business for
the common bottom-up view of its current
performance. Here best practice remains
the five-step IBP process.
IBP is not for creating the business strategy,
but for its successful deployment. An
organisation should plot its IBP process against
its business strategy and decide whether it
is creating the capability within the business
to supply to its volatile market. And it should
continually ask, whether the business is on
track to deliver its objectives and if not, what
can be done to address any gaps?
It is important to recognise that IBP is not
about gap identification but about gap closing.
Depending on where you are in the world,
there can be all manner of behavioural, political
or cultural factors that discourage managers
from declaring a realistic view of the market,
especially if that falls short of their ambition or
budget. Hence they over or underestimate their
requirements, often with deliberate bias.
IBP is not about reconciling performance to
intent; it is about delivering the intent. If a
company can identify the gap between its
Fig 2. The five step IBP model
current performance and its business goals, it
can then and only then, focus on what it needs
to do to close that gap. In an emerging market
environment decisions must often be much
more structural around strategy and capacity,
than in developed markets where tweaking
the sales or marketing levers can deliver the
desired gap closing outcome. So the earlier real
structural challenges are recognised, the more
time and options there are to address them.
Strategy does not just happen, and if we
choose a developing market strategy, we need
a process to deliver it on a consistent monthly
basis, regardless of our environment. It should
be clear that IBP is the ideal “engine” to drive
this requirement and forge the integration of
strategic imperatives with the Business
Planning and Execution horizons.
look, but also plan forward in a way that aligns
with its strategy and environment.
A formal IBP process closes gaps
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Although complex and unpredictable
environments provide many challenges, this
also brings the added benefit of a high calibre
of leadership. The rapidly changing environment
exposes leadership skills, especially in relation
to the ability to manage change, so successful
businesses are usually filled with good
leadership skills.
Also, the speed of change in these markets
requires leaders to be a lot more involved in
understanding their business. They may not
have the luxury, or inhibition, of corporate
structures and rigid ways of working to protect
them from changes in the business. And often
the leadership team already works very closely
together. As a consequence, the IBP process,
which is designed to give the whole business
a common set of numbers and a common
understanding of where it is, is often more
favourably received, because these leaders
understand they simply cannot afford to be
without a single integrated approach to running
the business. They have already realised the
ineffectiveness of silo thinking.
It is often the case too that organisations in
emerging markets do not tend to be very
hierarchical. This does not challenge the IBP
model because IBP is not a hierarchal process;
it is simply a framework for making decisions,
and often matrix driven. Indeed it benefits from
the responsiveness of companies that have
flatter structures.
Championing people in a complex environment
Businesses in developing markets may not be
able to afford highly sophisticated software
tools but it’s a common fallacy that complex
tools are needed to run IBP because it is an
aggregate process; it works at the level of detail
that is relevant to an organisation’s leadership,
its processes and its tools.
For a business to understand how to develop
a solution, there isn’t a ‘one-complexity tool’
fits all model. Because of the aggregate nature
of IBP, the burden on technology and process
from a data perspective is often not as high as
it might be say, for planning and control where
data might be at the SKU level. So, Integrated
Business Planning is a methodology that can
get around technology challenges, as opposed
to being a victim of it.
Tools and the technology evolution jump
A business simply cannot wait for the arrival
of the perfect environment, technology or
process solution for IBP, because it needs the
process in place to get the traction required to
improve the process; it is a classic chicken and
egg scenario. This is true in developed as well
as developing countries and especially so in
terms of understanding the level of technology
required to support the process.
As previously discussed, speed of change
is one of the great challenges in developing
markets so there is also no perfect point in
time to implement IBP. A business does not
reach a certain stage in its evolution when
IBP becomes the next thing to do - after the
walls are painted, the fibre optic is in and the
Wi-Fi installed. Rather IBP should be viewed
as something that helps deal with the speed of
Fig 3. Identifying and closing performance gaps
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change; it is not in itself part of the evolutionary
journey. The crucial thing is to make a start as
soon as possible, with the mind-set that it’s far
better to be almost right than exactly wrong.
This is especially true in emerging markets
where there is often a so-called ‘technology
evolution jump’. For example, with the
introduction of mobile phones, the majority of
the African population will never own a landline.
Businesses will not go through the process of
installing landlines then moving on to using the
mobile network. Neither does it make economic
sense to install fixed-line telecoms across
huge, sparsely populated and sometimes
difficult-to-cross terrains. And a newly
established business might not need to buy
a single PC because in a few years’ time (or
even now) the business will be run from mobile
phones. Businesses need to look at realities of
their environment and implement IBP within
that environment. There is no sense in taking
the business back 20 years, just to take it
forward 20 years.
Organisations in emerging markets do not have
to go through the same development cycle as
those in the west, and will instead experience
different technology evolution journeys.
Integrated Business Planning allows the
organisation to execute an effective strategic
response to its environment, whatever it is, and
wherever it is in the world.
Ultimately, businesses need to create a
capable strategic response to the volatility that
is inherent in their market place. This means
starting with the basics. Senior management
must create short-term stability, through the
development of a responsive capability for the
volatile environment, rather than becoming
the capability themselves, and thus falling into
the trap of having to manage on a day-to-day
basis. They can then focus on what is required
for the future success of the business.
This is the fundamental Oliver Wight model,
which advocates that a business needs its
leadership to think about the capable strategic
response in its market place to stop fire fighting.
If you are the captain of the ship, whether you
are in calm waters or stormy seas your best
place is on the bridge, steering the ship and
looking out for hazards ahead, not running to
the engine room to stoke the boiler. Integrated
Business Planning allows business leaders
to do this because it provides a radar for the
future. In a volatile market a business needs
to be looking at that radar all the time.
A successful Integrated Business Planning
process allows the leadership team to plan
and manage the entire organisation. Once the
business is under control, Integrated Business
Planning becomes the perfect foundation for
the deployment of continuous improvement
activities, to drive growth and enable continued
effective decision-making.
So in conclusion, to view Integrated Business
Planning as just an enhancement to a business
already in a stable predictable environment
is fundamentally wrong. It is not a matter of
creating an environment for Integrated Business
Planning, it is about implementing Integrated
Business Planning to create an environment for
successful strategic response.
Framework for delivery
About Oliver Wight
At Oliver Wight, we believe sustainable business improvement can only be delivered
by your own people; so, unlike other consultancy firms, we transfer our knowledge to
you. Pioneers of Sales and Operations Planning and originators of the fundamentals
behind supply chain planning, Oliver Wight professionals are the acknowledged industry
thought leaders for Integrated Business Planning (IBP).
Integrated Business Planning allows your senior
executives to plan and manage the entire
organization over a 24-month horizon, while
Oliver Wight’s extended Supply Chain Planning
and Optimization ensures your supply chain is
designed and structured to deliver best-in-class
customer service with minimal costs. Using
the Oliver Wight Maturity Model to pursue our
globally recognized Class A standard for best
practice will determine a tailored improvement
journey for you to develop your organization’s
processes, and reach and sustain excellent
business performance. With a track record
of more than 40 years of helping some of the
world’s best-known organizations, Oliver Wight
will help you define your company’s vision
for the future and deliver performance and
financial results that last.
Inspiring
Business
Performance
Oliver Wight EAME
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Maisemore, Gloucester, GL2 8EY, UK
T: +44 (0)1452 397200
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www.oliverwight-eame.com
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