The Case for Agile Business Planning in Diverse Markets
By Glen Margolis and Chris Turner
The pressure for excellent business performance is complicated by the seemingly contradictory expectations of both continuous growth and cost reduction. As the pendulum swings between the need to go global and the need to localize and personalize, companies no longer have the luxury of choosing between centralized or decentralized operations. They must do both: respond to regional regulatory requirements, tastes, and configurations while maximizing the economies of scale and efficiencies that come with a global supply chain.
Mapping the need for regionalization against today’s global supply, manufacturing, and distribution environments remains difficult. Natural disasters, fractured markets, multifarious competitors, and increasingly demanding customers all threaten to disrupt business and operational planning.
As organizations expand geographically, they become more intricate, with many moving parts on a multinational scale. Contending with these complexities often leads to a control mind-set, where businesses try to gain more power over a familiar set of processes in order to create reliable forecasts, sound decisions, and predictable results. This is a recipe for disaster.
Instead, companies must embrace a growth mind-set, one that enables them to be more agile and adapt to an increasingly interconnected world. Success hinges on a fine balance between control and growth. Agile businesses can recalibrate plans in the face of volatility because they have identified what they can control and have integrated the flexibility to respond to upside opportunities and downside risks via what-if scenarios. As a result, they can consistently deliver high quality at lower cost without constraining growth. The need for such skills is clear from recent cataclysmic events__such as widespread flooding in Thailand and the Japan tsunami__which froze regional businesses without malleable supply options. There was no way to quickly move and shift resources, and many companies were forced to retool their planning and operations practices.
The control mind-set often aims to reduce complex problems to their components. In the context of a global or multinational business, this often means establishing planning and decision-making processes within individual country units and functional organizations. However, this can cause a business to lack a single set of numbers by focusing too much on the whole. Conversely, agility requires planning for multiple scenarios (or component parts) and constantly recalibrating, particularly in new or volatile settings.
Agility cannot happen in a silo. It requires
- processes that are cross-enterprise rather than departmental
- information systems that encompass supply, demand, sales, operations, finance, distribution, and customer and order management
- collaborative and adaptive behaviors.
Coca-Cola is a good example of a company that has mastered the control-versus-growth paradox and created a successful environment for business agility. By establishing a common high-level vision and a single system for collaboration across the supply chain, the powerhouse maintains an agility that enables it to grow and adapt despite its size. The Coca-Cola system reflects a conscious choice to be highly globalized with economies of scale in some areas with customized delivery to local consumers all over the world. Through its relationships with bottlers, Coca-Cola tailors access to local consumers via every channel type, from a Walmart in Atlanta to a street vendor in Mumbai.
Coke’s most recent reorganization fine-tuned the balance further, with CEO Muhtar Kent commenting, “Over the past couple of years, we have systematically been adapting our business model to better address the changing needs of the global marketplace. Now is the time to take the next step in our evolution. By consolidating leadership of our global operations ... we will streamline reporting lines, intensify our focus on key markets, and create a structure that gives us flexibility to strategically adjust our business in the future.”
Balancing control and growth
At the extremes, the control and growth mind-sets may seem starkly different, but they are not mutually exclusive. In fact, smart companies realize and employ the advantages of each. The world's fastest-growing manufacturer of personal computers and consumer electronics provides a great example of this approach. On one hand, the company__with revenues of more than $9 billion__is growing in excess of 11 percent per year in a market that has been shrinking by 7 percent per year. This can be attributed to a decentralized structure that facilitates an entrepreneurial spirit and aggressive growth in fast-paced emerging markets. On the other hand, the company also has significant market share in slower-growing, mature markets. The company discovered over time that the best planning mechanisms for mature markets often are the worst practices for emerging ones.
To address this situation, the business segmented its planning approach into unique processes based on regions. It adopted more formal and stringent strategies for mature areas while allowing for more flexibility in high-growth, emerging markets. In addition, product mix and go-to-market methods were fine-tuned. Globally, the business focused on higher-end, higher-margin laptops; whereas, in growth areas, the focus was on lower-end, less expensive laptops, tablets, and consumer devices. In addition, the firm adopted an aggressive acquisition strategy in emerging markets to rapidly build a broad base of distribution channels__an option not possible in more mature locales.
To achieve the right control-growth balance, organizations need to eliminate short-sightedness around the mechanics of a process__inputs, outputs, formats, predetermined templates, and so on__and focus instead on human-centered decision making that brings the process to life and creates line of sight to the overarching strategy. The following steps are a great foundation for putting agile decision making into practice amid complexity and volatility.
By replacing rigid, controlled, and potentially fragile processes with planning agility, companies are better able to support simultaneous regional and global planning. If successful, the result is meaningful growth at both levels.
- Engage senior management early and understand what challenges the business is trying to solve. Build consensus with management to create a systematic global planning process that incorporates direct feedback from regional salespeople on demand trends at the product-family level; supply chain feedback on backlog, inventory, work-in-progress, and regional inventory hedges; and finance regarding regional goals, margin, and revenue targets.
- Drive accountability by ensuring that each contributor to the global sales and operations plan is measured on the effectiveness and accuracy of his or her plan.
- Follow a regular monthly cadence for planning, but leave the door open for real-time adjustments based on exceptions that may be identified relating to emerging demand trends and capacity limitations.
- Establish consensus regarding total expected demand before driving into mix-level detail. This ensures that the top-line plan conforms to realistic expectations.
- Identify revenue versus margin trade-offs, emerging regional demand patterns, and potential supply constraints in the context of the monthly planning process.
- Segment business based on market growth trends, maturity, and preferences in order to ensure that different plans can be effectively applied to each unique process.
- Leverage trend-based metrics__such as percent demand trend over a certain period by market and product family, forecast-to-plan accuracy, and forecast accuracy by region__in order to better identify demand patterns.
Glen Margolis is founder and CEO of Steelwedge. He may be contacted at email@example.com.
Chris Turner is cofounder and managing director of StrataBridge. He may be contacted at firstname.lastname@example.org.