Strategic Planning: What Your Company Needs to Know

Many organisations are far from satisfied with their own strategic planning processes. In recent research conducted for Accenture, only 11% of companies described themselves as “fully satisfied” with their planning capabilities, compared with 17% two years ago and 20% ten years ago. At the same time, more than 80% of respondents said that the importance of accurate planning has increased.

 
The economic downturn highlighted some of the reasons for this dissatisfaction. Organisations found that plans developed in a schedule-driven annual exercise – based on historical financial performance and unduly optimistic economic assumptions – were of little use in preparing for changes in the market. Ineffective planning and forecasting caused companies to mislead their investors and created a pervasive atmosphere of scepticism in future initiatives.
 
Asia-Pacific organisations did not experience the severe economic difficulties that their peers in North America and Western Europe had to cope with over the past two years. Still, they face their own planning challenges. Organisations in Asia need to establish planning processes and systems that realistically reflect various economic conditions, cultures and languages and account for behaviours and preferences of customers in different markets. Such planning capabilities can provide a significant strategic advantage for companies exploring new markets, as many in Asia-Pacific are doing.
 
Asia’s Challenges
Organisations in the region display varying levels of expertise and sophistication in the area of strategic planning. In general, the more consensus-based management models typical of Asia-Pacific do not readily lend themselves to centralised planning processes. While this may actually be a benefit – given the shortfalls of strategic planning in general – Asia-Pacific organisations face other challenges in creating realistic, flexible plans. Among them:
 
  • Lack of reliable data. Reliable external data on market growth, competitors’ market share and other basic elements needed for accurate planning is not as readily available across the Asia-Pacific region, especially in countries such as Thailand, Indonesia and China, where the entire business infrastructure is relatively new. In large markets such as Indonesia, with over 250 million people, the lack of data can present serious obstacles to planning for market expansion and growth.
 

Accenture has found that high-performing organisations take greater advantage of external information about customers, competitors, investor expectations and regulatory developments than their competitors do, so organisations must take steps to develop and/or obtain such data.

 
  • Underinvestment in modern tools and processes. Organisations in the Asia-Pacific region face another challenge, one that affects strategic planning as well as a wide range of other business processes and functions. That challenge is the number of antiquated and/or legacy systems used for assembling and analysing data. Although the problem is not unique to the region, some Asia-Pacific organisations still struggle with collecting and analysing numbers from as many as 800 separate spreadsheets. While many are making rapid advances – moving quickly to deploy SAP and other enterprise-wide systems – others still have a long way to go.
 
  • Limited driver based and scenario planning involvement in the planning process. While organisations in Asia-Pacific are increasingly looking to adopt scenario modelling and driver-based planning, their current use is quite limited. Budgets based on financial plans rather than the business’ operational drivers, such as volume and unit price, do not reflect the true organisational dynamics. The use of scenario planning can help managers anticipate material changes in the environment and make decisions and course corrections more rapidly and effectively.
 
To optimise the process and improve accountability, organisations need to involve the business, which is attuned to shifts in customer priorities, competitor pricing moves, and other changes in local market conditions. Business personnel are best placed to provide the assumptions for key value drivers that affect sales, inventory levels, production volumes and staffing needs. They are the appropriate starting point for accurate planning and forecasting of demand. 
 
Events, Not Schedules
Event-driven planning (as opposed to schedule-driven exercises) reflects the reality that business circumstances can change quickly and unexpectedly. The most useful way to incorporate events into the planning process is to monitor a set of value drivers chosen for both their volatility and their material impact on the business.
 

These drivers might include patent expirations for a pharmaceutical firm or grain price fluctuations for a food company. Tolerance ranges can be defined for each factor, and when the tolerance level has been reached, the organisation can revise its plan and reallocate resources to close the expected gap.

 
This approach does not diminish the role of the finance function, which refines the planning model, validates business assumptions and coordinates the overall effort. Finance usually takes responsibility, and works to make sure that senior management understands the process and the resulting plans.
 
A more effective capital allocation framework rewards employees who act like owners, by ensuring that only projects with a return greater than the cost of capital are allowed to go forward. A structured framework also links capital allocation with the strategic plan. Clear strategies and clearly stated criteria help senior managers make informed choices that lead to value creation.
 
Technologies and Frameworks
Asia-Pacific organisations face huge complexity in making investment choices across markets and brands. Each market has different risks, regulatory regimes and customer priorities. Managers can improve the return on their investment decisions and make better resource allocations across multiple geographies by adopting more rigorous technologies and frameworks for analysis.
 
Advanced analytics, in particular, has become a key source of competitive advantage for European and North American organisations over the past decade or so. In fact, high-performance organisations are five times more likely to use analytics– the employment of quantitative methods to derive actionable insights from data—than low performers.
 
Superior analytics start with good data. For the purposes of planning, companies must determine what the highest priority data is, and then invest resources in validating, cleaning and consolidating such data. Many organisations have surprisingly little solid information on the market share of their major product segments, customer repurchase intent, brand equity data for their own and competing brands, and similar indicators of progress.
 
Ideally, such advanced analytical techniques are linked with an effective framework for capital allocation. Accenture has found that resource allocation processes are often flawed because they fail to account for the true cost of capital and its impact on shareholder value creation.
 
For instance, performance targets for individual departments often undermine capital cost effectiveness because the metrics used to assess the performance of managers are based on accounting principles, rather than on measures that favour creation. As a result, projects that do not meet the cost of capital but appear to help meet revenue or profit targets are allowed to proceed, despite the fact that they ultimately destroy, rather than create, value.
 
Broader Perspective
In volatile times, managers may tend to focus on shorter-term planning components, such as forecasting. Overreacting to short-term economic fluctuations, however, impairs long-term strategy and compromises a company’s ability to create value in the future. A broader planning perspective strikes the right balance between short-term and long-term performance.
 
A broader perspective also takes into account both capital and investment activities that may fall under selling, general and administrative (SG&A) category, which is crucial for future value creation. Certain SG&A costs should be managed strategically, especially when they affect key intangibles such as employee engagement, communication, and company culture.
 
Properly executed strategic planning helps to maintain a healthy balance sheet. Organisations with strong cash flow and balance sheet planning are more effective at executing their strategies and at responding to new opportunities and challenges. Over 90% of the Accenture survey respondents who said they are fully satisfied with their cash flow and balance sheet planning processes also said they can execute their strategic plans effectively and efficiently.
 
Finally, intangible assets such as brand, intellectual property, channel relationships, and human capital represent a growing proportion of business value. Traditional planning processes miss this trend. One-third of the organisations in the Accenture survey do not plan for intangibles in any form. While measurement of intangibles can be difficult, as can devising links between intangibles and financial outcomes, organisations risk under-managing some of their most important value drivers if they fail to include intangible assets.
 
Asia-Pacific organisations are operating in—or entering – markets with vast potential. By adopting driver-based planning, increasing the leverage of analytics and expanding business participation in the planning process, managers in the region have a tremendous opportunity to build long-term value. The information, analytical tools and structures needed to accomplish this are readily available and can provide a tremendous competitive advantage for companies that are willing to use them.
 
About the Author
Paul Prendergast is an Executive Partner and lead for Accenture’s Finance and Performance Management service line for Southeast Asia. He is also Accenture’s Asia Pacific lead for Planning & Budgeting and has led a number of shared service design and implementation projects across Asia Pacific working with multinationals to set up shared service centers in India, China, Malaysia, and the Philippines.

 

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