Game on: Leveling up your Integrated Business Plan
Integrated Business Planning (or IBP) is becoming an increasingly important topic for leading organizations that want to stay competitive in their industry, become more intelligent and enhance nearly every critical business function through the widespread impacts of an intelligent and connected planning process. Traditionally, the ability to align various operational plans (demand, supply, and manufacturing) into one single operating plan to best respond to changes across operations is referred to as Sales and Operations Planning (S&OP). S&OP is to keep the plans aligned and to agree on tactics required to execute the plan with defined sets of KPIs.
The difference between IBP and S&OP is that Integrated Business Planning takes S&OP principals one level further and identifies the gaps between the latest financial projections vs. the strategic objectives of the company in order to place the emphasis on competitive priorities — the emphasis being on financial planning. Think of IBP as the ‘next-gen’ of business planning.
Business planning has been around in one method or another for hundreds of years, and most foundational concepts of IBP are at least 50 years old. So, what exactly makes IBP different? How can your organization benefit from incorporating key IBP methodologies? These questions and more will be answered as we walk through the key milestones and IBP journey of a well-known organization: Nintendo.
Game on
In 2006, Nintendo’s Wii gaming console was introduced to the world alongside a playful motion-controlled hand-held device approximately the size of a Snickers bar where it was used to physically interact with its games. In a time where other competitors such as Sony and Microsoft were investing in better graphics but gorier and darker visually backed shooter games like Call of Duty and Gears of War, the Wii had family friendly games starring cute fan favorite mascots such as Mario and Yoshi that appealed to younger teens and older demographics while incorporating physical movements and motion guided movements into its gameplay. The Wii defied all trends in the gaming world at that time and become one of the highest selling consoles in Nintendo history with sales of over 100 million units.
This popularity came at a cost though, as Nintendo was unable to anticipate the Wii’s demand where two years later after the launch “U.S. consumers still can’t walk into a retailer such as Best Buy or Wal-Mart and pick one up a shelf.”
What was the impact of this to Nintendo? It gave Sony and Microsoft the opportunity to increase market share, allowed sellers in the secondary market to profit off low supply and scarcity, and most importantly frustrated consumers to look elsewhere for their entertainment needs primarily in mobile gaming. This is a classic example of an organizations’ planning process not being robust enough to incorporate market competitors, not agile enough to make real-time decisions, and ultimately not accurate enough make predictive changes.
Fast forward to over a decade when the Nintendo Switch (another video game console) was launched and released early March 2017. The console is described to be a hybrid where it can be used as a portable “on-the-go” device or as a traditional stationary console such as Microsoft’s Xbox or Sony’s PlayStation. Nintendo went through the same predicament, the demand forecast was off again — and the Switch was out of stock at retailers across the world. Again, an example where Nintendo’s S&OP processes failed to make the impact a healthy and accurate S&OP process should — be able to correctly predict demand and ensure the supply and operations were all in sync.
There are many examples in Nintendo’s history that point to other forecasting miscues such as the Nintendo 3DS (a portable gaming device), the NES Classic Mini (a gaming console that included 30 classic NES games from the past), and the SNES Classic (similar to the NES Classic Mini). All signs point to Nintendo having severe forecasting accuracy errors but also highlight their inability to track supply and demand signals across their global networks which resulted in reduced sales and low customer satisfaction.
Videogame console manufacturers (Microsoft, Sony, Nintendo) traditionally have used historical trends to set their prices and to baseline their demand planning figures but given the recent shortage trends, is this the right way to go about it? Companies such as Nintendo need to not only incorporate historical trends but begin leveraging other external inputs and integrated data across various functions and predictive analytics for their scenario planning while creating collaborative processes that breakdown silos and siloed functional plans into one united plan. Because the consumer marketplace is more complex and volatile than ever and with supply chains being globalized, having a disconnected plan can be detrimental to the success of a company. This is where Integrated Business Planning comes into play:
Leveling up with Integrated Business Planning
IBP enables your organization to think, plan, and move as a single, connected, agile entity. Traditionally, individual functions — sales, demand, supply, and production would all plan individually and within silos. One function taking the others’ as simply an input, without any further collaboration, and generating their own forecast and budget. The concept and process of IBP breaks down these silos between functions, uniting the organization under one central planning process — all linked back to the organizations high-level strategic plan / vision. In addition, IBP is “external looking” allowing the organization to incorporate market and competitor data to remain at the cutting edge of their respective industry.
The benefits for the organization to move to an IBP model for planning are tremendous:
· A robust IBP process enables the organization to have a single “gold source” for all planning, forecasting and budget related data. No longer is time needed to be wasted on reconciling, mapping, and aligning on which figures are correct. Under a functioning IBP process, all functions — Sales, Marketing, Demand — will be looking at the same data.
· The organization will gain insights to both external and internal risks, market, and industry competitor data. Under traditional siloed planning, the planning process is very often solely internal looking with very little consideration to external market or competitor forces. IBP champions incorporating external data to the planning process — allowing for real-time, intelligent, data driven decision making. In our example of the video game industry above, a forecast or strategic plan that incorporates competitor data as a key input or driver would immediately be more useful to the organization’s leadership and decision makers.
· Increased collaboration as a result of implementing an IBP process across the organization will garner a multitude of benefits in and of itself. By creating a culture of collaboration, the organization will benefit from a naturally fact-based decision-making process. Under a siloed planning process, this simply is not possible as one function is unaware of how the other function is impacted during the planning process. Increased collaboration will result in shorter planning cycles, and in turn an increase in forecast accuracy, profitability, productivity and of course, staying ahead of the competition.
· Studies by AMR/Gartner, Aberdeen, and Ventana — as well as performance gains documented by Oliver Wight clients — all point to the same conclusion: “Companies that do Integrated Business Planning well achieve greater benefits than companies that do not.”
At the core of it all, IBP allows the ability for executives to see and understand how to allocate critical resources (people, inventory, materials, equipment, cash) to most effectively deliver to customers with profitability in mind. Financials are now the key driver for planning. IBP allows for scenario planning, contingency planning, and risk management by incorporating intelligent analytics and integrated technology that realigns operations and incorporating the Finance function as a major player; other functions such as HR and R&D are also major players whose plans can and should be incorporated.
Challenges to IBP
IBP is a great framework for any organization to operate with, but it does come with its own set of common challenges when it comes to implementing a successful and lasting process.
Nintendo’s story represents a classic S&OP problem where the inability to utilize historical data for new products in combination with not having external market inputs created the perfect situation for a major forecasting blunder. By how often Nintendo has missed its mark, some industry analysts have even suggested that the scarcity is a tactic to keep demand high and, indeed, it’s possible that this is true. Despite some movement up and down, Nintendo shares consistently remain strong.
However, as a thought exercise, let’s follow the thought process that supply issues such as these are serious forecast accuracy issues. The Nintendo Switch came out in March 2017 to serious hype and fanfare. Yet Nintendo struggled to stock shelves after the initial sellout and struggled deep into the year (July/August). We can only imagine the amount of lost revenue and market-share to competitors by this serious miscue in demand forecast. In 2020, social distancing efforts existing now to fight the spread of COVID-19, the demand for the game system has increased leading to more rampant supply shortages. Although a “black swan” event such as COVID-19 was hard to forecast in 2017, the scarcity of product was accelerated through the release of popular games such as Animal Cross “New Horizons” and Ring Fit Adventure which has impacted demand as well. While we won’t be discussing how to predict for “black swan” events in this article, there are many ways supply chains can change their strategy to be more agile. Reach out if you want to discuss more in the contact information below.
As you look to level up your planning efforts, keep your eye on your data. Mistakes like this may cost in the tens of millions — not to mention the intangible losses of customer frustration and brand perception reduction. Data acts as the key building block of an effective and intelligent IBP process and is one of the three most common challenges, the others being effective tools and people.
Slalom is a global consulting firm focused on strategy, technology, and business transformation. Learn more and reach out today.
