Integrated Business Planning Drives Better Performance
How IBP can be a more effective business tool than a traditional annual budgeting process
There’s something better than budgeting. It’s Integrated Business Planning. Planning that’s business-focused and aimed at success.
Robert Kugel, CFA
Senior Vice-President & Research Director
00:00:16I want to talk about an alternative to the annual budget. An alternative that can be a more effective business tool than traditional budgeting. Because there's increasing interest in something called Integrated Business Planning. The kind of planning that integrates strategy, operations, and finance - the three pillars of business planning.
00:00:36Today, an integrated, enterprise-wide, business-first approach to planning exists in only a handful of leading edge companies. In most corporations, the only mechanism that's supposed to integrate the three pillars of planning is the annual budget.
00:00:51But budgeting isn't really Integrated Business Planning, and that's because budgeting is mainly about financial planning. Its purpose is to give the finance department fiscal control. It's financially focused, and it doesn't give executives and managers enough operational focus to enable them to manage the business in a way that enables them to achieve their business goals and support the company's strategy.
00:01:17Budgeting is essential, but it's not Integrated Business Planning. Integrated Business Planning requires the right technology. Technology that enables the entire enterprise to plan collaboratively.
00:01:29Now, you wouldn't dream of trying to use paper and pencils and adding machines today to do your budgeting. Well today, spreadsheets are the new paper and pencil. Unfortunately, a large majority of companies use the wrong technology. They aren't able to do Integrated Business Planning because they use spreadsheets. In fact, our business planning benchmark research found that 65% of companies with 500 or more employees use spreadsheets for budgeting, 63% of them use it for sales forecasting, and 75% of them for sales and operations planning.
00:02:06Well, 40 years ago, spreadsheets were the cutting edge, but not anymore. In fact, spreadsheets are the wrong technology to use in any sort of collaborative planning or budgeting, because spreadsheets are silos of information that force silo-based planning. Spreadsheets are difficult to consolidate into an integrated plan, even for experts, even for people who've been using them for decades.
00:02:30Integrated Business Planning just works better. Our research, in fact, shows a correlation between the degree to which individual business plans are linked, and how well a company's planning process works. 66% of companies that directly link all of their planning data through, say, a dedicated planning platform, have planning processes that work well or very well, and that's compared to 40% where the information is copied and pasted, and just 25% where there's little or no connection between the plans.
00:03:01A planning platform with direct links, integrating each business unit's plans with one another, makes the planning process more effective.
00:03:09Now one important difference between budgeting and planning is that people in finance and accounting think mainly in terms of money, while people in operating roles mostly think and plan about things, things like headcount, units produced, and raw material consumed. Because budgeting is about money, it only indirectly touches on business management issues such as management effectiveness and strategic alignment. And because of that, budgeting has limited value as a business management tool.
00:03:40A planning platform makes it relatively easy to allow business managers to plan the things they need to achieve their objectives that automatically translates into budget line items. It also lets them quickly revise those plans and then automatically lets senior executives see a company-wide result - almost immediately.
00:04:02It's important to recognize that budgeting and planning are fundamentally different. Budgets are essential to achieve financial control, in order to ensure that a company has the cash it needs to operate. Budgeting is necessary to prevent a company from running out of cash and failing. On the other hand, planning, especially strategic planning, is about finding ways to achieve success.
00:04:27Planning is about understanding the different ways to achieve success to beat the competition. Companies need to budget for financial control to avoid failure, and they need to plan to achieve business success. They need to do both. But the emphasis must be on planning because not failing isn't the same as succeeding. And technology, using a planning platform, gives companies the ability to plan and budget simultaneously and do both more efficiently and more effectively.
00:04:58There's something better than budgeting. It's Integrated Business Planning. Planning that's business-focused and aimed at success. Integrated Business Planning, using a planning platform, enables companies to plan, budget, report, and analyze faster and more accurately. It can make planning and budgeting a more effective business tool.