Executive Guide to Integrated Business Leadership Frequently Asked Questions

Transcription

1 Executive Guide to Integrated Business Leadership Frequently Asked Questions Richard Watkins

2 Q 01 What is Integrated Business Leadership [IBL]? Many companies put together a 3-5 year strategic plan, and then agree an Annual Operating Plan [AOP]. Performance is measured against achievement of the AOP. However, global competition and globalised economies mean that achievement of the plan is never guaranteed. Hence every company needs to review at a strategic level on a monthly cycle for a horizon of months the likely outcomes against these plans. If there is a divergence, then action needs to be taken by the Senor Leadership Team either to get back on track or to make the most of current growth. Performance is measured each month and not once per annum to give better feedback. All plans in the business are synchronised through one version of the truth. The performance measurement framework should support teamwork and continuous improvement. Leadership implies clear direction and responsibility for actions. That s IBL. Page 2 of 16 Delos Partnership Ltd 2018

3 Q 02 What is IBL trying to achieve that is different? Strictly the answer is nothing! It is the way that you try and achieve it that is different. IBL was founded on the principles of Sales and Operations Planning invented in the 1980 s. The key objective, to meet the profitability requirements of a business, is to achieve high levels of Customer Service delivery to customers on time in full, what they want and when they want it. This is because, in a competitive environment, ultimately customers will judge your products and services on the basis of product quality, cost and value to them, and the speed and accuracy with which you deliver it. All other things being equal, delivery becomes a differentiating factor, and the quality of the supply chain performance matters. However, this has to be managed against the constraints for a business. For Make to Stock products inventory has to be optimised, to prevent cash flow being compromised. For Make to Order products the lead time to customers has to be managed against capacity constraints. The cost of flexibility in the supply chain to meet instant requirements for availability has to be managed against the requirement to be productive and low-cost i.e. cost-effective. All of these factors conflict in the pursuit of maximising a company s Return on Capital Employed [ROCE]. So, IBL is seeking to maximise a business ROCE. The key golden nugget is that all businesses find that their Operating Functions operate in conflict with each other in organisational silos. This is driven by the reward and motivation structure, and hence the key factor that IBL seeks to address is changing the reward and motivational structure to achieve the goals of the business in a different way. Page 3 of 16 Delos Partnership Ltd 2018

4 Q 03 What is the problem that IBL is trying to solve? The first problem is the way that the budget is often built around targets. When Sales and Marketing are agreeing their numbers, they try to set them as low as possible for fear of what will happen if they fail to meet them. Operations try and establish targets as a high as possible for operational expenditure likewise for fear of what may happen. In a corporate environment, targets get adjusted upwards and downwards to represent aspirational levels of performance for Sales and Marketing and the opposite for Operations. This leads to multiple sets of numbers, as different functions maintain their numbers. If you put aspirational numbers into the planning system, then the operational side will produce to those numbers. Aspirational means unlikely to be achieved, and the result is that the operational side of the business ends up with excess operating costs and/or excess inventory, which has been made against anticipation of sales that do not materialise. The focus is also on achieving this year s budget, which drives shorttermism Secondly, stereotypically, Sales being judged in terms of their success by the extent to which they beat the budget will sandbag forecasts but then will willingly take on any sales opportunity, providing it increases revenue, regardless of whether it is operationally feasible. Inability to deliver is then seen as a failing of the Operations Director and their team. Hence IBL is about a culture of a single set of numbers, realism, honesty, fairness, long-termism and a lack of fear and blame. Page 4 of 16 Delos Partnership Ltd 2018

5 Q 04 How does IBL work? Ultimately a business the Leadership Team needs to make decisions about how to change the direction of travel, where needed. This is supported by an Integrated Business Planning process [IBP] to ensure all functions update plans in the current month in an organised and coordinated way. This is shown in the diagram below which shows there are seven stages that every business should go through every month. They are often built around meetings [they do not need to be new ones] that review the status of plans and issues that require decision. In principle each member of the Senior Team should have been prepared by their meeting or process to participate in the decision-making meeting [Leadership Team Review]. Every business will establish their own structure, as every business will be different; but the steps below are fairly typical. Page 5 of 16 Delos Partnership Ltd 2018

6 Q 05 Do I need a special system? Naturally you do not need a computer system to change behaviour or culture. However, in order to make decisions, review current progress to plan etc. you absolutely need a Business Information system to provide you with the reports you need. You will need to produce agendas, minutes etc. and recommendations for decisions, and you will need something like PowerPoint or similar to make presentations. The Business Information system will need to get its data from the ERP systems and/or Forecasting systems which will need to compare last plan to this plan etc. Too many companies rely on spreadsheets to work out their daily plans, which are not secure or robust systems with which to run a business. So, these should be eliminated in favour of using an ERP system properly. Naturally of course the data that is in the ERP system needs to be accurate. So while you do not need a specific system, you should make sure your information is based on a single database/erp system and accurate data. Page 6 of 16 Delos Partnership Ltd 2018

7 Q 06 Is IBL just for large companies? No! many large companies run without an IBL process in place. Clearly many if not all businesses start from a germ of an idea, managed by an original entrepreneur who grows the company Henry Ford, Bill Gates, Steve Jobs, Richard Branson. Many companies get to the point where they recognise that they can no longer operate in a way that relies on informal communication, unclear roles and responsibilities, and poorly defined policies and procedures. In this environment, it will be useful to adopt the IBL model. But being honest, realistic and telling the truth and making decisions based on the long-term should be something all companies practise. It is just that many companies adopt traditional management methods by which to control the company, that they force the wrong behaviours, and that can happen in big companies and small companies. Q 07 What will IBL give our company? To paraphrase President Kennedy s famous statement Ask not what IBL will do for you, rather ask what you will do with IBL. If you do not have good customer service, and it is not properly measured, then realistic plans to meet customer requirements will drive up your service levels. If you have too much inventory because the business has inaccurate forecasts and poor planning processes, then you will reduce inventory. If you spend too much time in meetings you will be more effective with the IBL model. If you focus too much on the short-term, you will make better long-term plans. Visibility will improve. Control will improve. It is what you do with IBL that will make the difference, not what IBL will magically produce for you. Page 7 of 16 Delos Partnership Ltd 2018

8 Q 08 What do I need to do to establish a successful IBL/IBP process? It depends a bit on where you are today. If you have nothing, you will need to set up a project team, they will need education, and then you will need to design the process. Here is our standard approach for these kind of companies: But many companies already have some kind of SOP process characterised by being purely volume based, focussed on operational issues, and not widely accepted as the way to run the business. A similar approach can be applied, but you need to look at systems, processes and culture and be prepared to change them all! Page 8 of 16 Delos Partnership Ltd 2018

9 Q 09 What will running IBP involve? Again, this depends on where you are today. But to give you an idea of the sorts of things that people address as part of an IBL project then here is an outline of what goes on in the month of a company that runs an IBP process [refer to Q04 for the overall process] Innovation Review All companies have new activities, which require good project and program management to be completed on time, in full and to budget. Hence this is an opportunity to improve this area. There should be a foundation of a good stage/gate process to make sure that there is an orderly and controlled process for product and process introduction. Good business plans based on realistic forecasts should support the development of new things. Most importantly there should be the ability to have visibility of resource requirements to support all the activities, and if there is insufficient resource, there needs to be a clear prioritisation process to make sure New Activity is directed towards strategic objectives. Performance on project and program achievements will be measured. Demand Review Demand for products is constantly changing, in light of changes to the market place. It is impossible to provide a perfectly accurate forecast about the future. However, the future will not be like the past and there should be a formal process to provide all functions with visibility of future demand, based on realistic assumptions that should be clearly documented. Ownership of forecasts must belong to the Sales and Marketing functions, as they are intimately involved with creating demand, and responding to demand in the market place. One of the ley features of the IBL process is that forecasts should be as accurate as possible which simply requires Sales and Marketing to communicate current conditions and changes in conditions in a timely fashion. Behaviour like sandbagging the forecast or over-forecasting do not help a realistic Page 9 of 16 Delos Partnership Ltd 2018

10 projection of cash and capacity requirements. These will be controlled through the use of measurements of forecast accuracy and bias. The output of this step will be an unconstrained demand plan going out months at detailed Stock Keeping Unit [SKU] level and at family level in Volume and Value, based on realistic current assumptions. Supply Review The capacity of the whole supply chain to respond to the supply plan will be reviewed at this step. This must include not only the direct capacity required to respond to demand, but also the flexibility to respond to changes to demand in terms of spare capacity and/or inventory levels. Links to external suppliers through the IBP process by involving them in the meetings will be useful. But the procurement side should provide a view on capacity, capability risks and opportunities. Similarly, internal manufacturing resources should be subject to short-term and long-term views of capability and capacity. Capacity availability should be based on demonstrated capacity and not theoretical statements of what should be available. Support Review This step could be one or multiple steps, depending on organisation. However, this step turns the information from the previous operational steps into a projection of the P&L and Cash Flow for the Financial part of the process, to support decision-making. It should also look at the requirements for the development of Human Resources and Talent Management. This includes understanding and putting together a plan for recruitment of the right resources to support the strategy, and also make sure that current skills are fully developed. The process should also cover the development of the Information Resources side of the business, covering the development of integrated business planning systems within the business, Page 10 of 16 Delos Partnership Ltd 2018

11 Prioritisation This step provides an opportunity to prepare for the Senior Leadership Team [SLT] review, and make sure that the SLT focusses on the key issues which require a decision. Chance favours the prepared mind. Hence simulations, scenarios etc. should be prepared through this step to support a paper going to the SLT around, from which they can make a decision. Senior Leadership Team Review This is either the Board of a small company, or the General Manager and their team in a Business Unit which is part of a larger corporate structure., and CEO of the total business. The CEO and team will review the current state of the business vs Last Plan and the Budget and then review the decisions that need to be made, which are outputs from the previous steps of the process. All of this is built around a series of meetings [which may already take place] which are seen to be mandatory for the people defined to be part of the process. It is the way that the business is run. Page 11 of 16 Delos Partnership Ltd 2018

12 Q 10 What information will I need for IBP? The information you need for IBP is whatever you need to run the business However, key to the IBP process is to manage at what we call the Family level i.e. using aggregate data [hence tonnes, litres, 000 s of units]. These aggregations will need to be sliced and diced by Market segment, or Channel for Sales and Marketing, and by Resource type for Factories and Third Party supply resources, which is going to be Tonnes or Hours or Litres etc. Financial information will also need to be expressed by territory or business unit or financial region, depending on business structure. All of this should be capable of being displayed in graphs. The key point to avoid is paralysis by analysis thus getting too bogged down in the detail. Roughly Right rather than precisely wrong is a core mantra for the operation of IBP. The Aggregate should always be the sum of the detail, and the detail should be kept in line with the decisions made through the IBP process.. Page 12 of 16 Delos Partnership Ltd 2018

13 Q 11 Will IBL work in Global Companies? ICI Agrochemicals was the original division of ICI that implemented SOP/IBP in the 1990s. It was around 1.5 bn turnover in size. This has now turned into Syngenta which has a turnover of around 10 bn. It still runs a very similar local/regional and global process each month. There are many global companies running a global process. A Global business needs to establish the same principles and processes across all sites, and ensure that there is a clear link between local functions, regional activities and global activities, and be clear about responsibilities at all levels in what often ends up as being a complex matrix structure environment. The diagram of the process often becomes a lot more complex as the following illustrates: The principles of trust, honesty, realism and absence of a blame culture remain the same. Page 13 of 16 Delos Partnership Ltd 2018

14 Q12 How much does it cost to implement? This depends on where you are, how big your company is, and what you need to do to develop the process. It also depends on whether you have an ERP systems in place, or you need to implement IBP/IBL as part of the roll-out of an ERP/Business Transformation process. The input from us comes from education and consulting. We are very different from standard consultancies, as core to our activity is knowledge and experience transfer. You cannot sub-contract process development, behaviour change and leadership to consultancies. We will typically provide a series of 2 day education workshops, 1 day design workshops and consulting to support the establishment of the process. We aim to get a working process in place within 6 months. We will carry out an assessment as an early part of our engagement to give you an order of magnitude of the cost and benefits of our involvement. The biggest cost is the cost of delay! Q13 How long does it take? Of course, that also depends on where you are. But if we started with you now, then we would take around 3 months to help you design the process. We would then encourage three cycles, during which you would develop and refine the process. It then depends on systems and how long it takes you to roll out across how many countries etc. But you ought to be able to have a stable well-running process within 12 months. Page 14 of 16 Delos Partnership Ltd 2018

15 Q14 Who will need to be involved? IBL, as the name suggests is not something that can be delegated. The Senior Team all need to take ownership and commitment for developing the process, You are likely to need an experienced person to lead the project a Factory Manager of Commercial Manager for instance. You will also need a Project Team of good people [unless they are already part of n ERP or Transformation Project] to manage each of the processes. At the end of the day, this is about how you run your business to maximise your profitability. Why would you not want to actively commit and involve your key managers to developing the process? Page 15 of 16 Delos Partnership Ltd 2018

16 Q 15 How can we start? If you are interested in learning more about what IBL is, why you should do it, how you can improve customer service, increase market share and reduce costs, then give us a call: Hellie Dullehan : +44 (0) E: helliedullehan@delospartnership.com We will come along and talk to you, and then carry out an assessment, and let you know what will be the costs and benefits of implementing Integrated Business Leadership through an Executive Briefing. Page 16 of 16 Delos Partnership Ltd 2018