How Planning System Redesigns Can Succeed: A survey by the FEI Research Foundation and the Buttonwood Group finds that successful redesigns of planning systems have gotten strong management and organizational support. (Research).

If you're considering a redesign of your planning system, the key ingredient for success is getting an organization-wide buy-in to the process. That's the message from the preliminary results of a recent survey by the FEI Research Foundation and Buttonwood Group LLP of Stamford, Conn., a leading consulting firm.

Designed to find out whether planning process redesigns have satisfied expectations, the survey also sought to identify important steps to successful redesign structures, as well as what missteps led to disappointments. The survey accomplished those goals, indicating what steps were taken by those companies that met or exceeded expectations, and how their approach differed from those at companies that were least satisfied with their redesign.

One huge takeaway from the survey is that regardless of the redesign's goals, the most important step in the process is to involve the entire organization. For companies large and small, broad acceptance and participation in the development of the process are essential to the new planning system becoming a best practice.

"Obviously, there is a relationship between the size of the company and the complexity of the redesign," says Lawrence Serven, principal at the Buttonwood Group and architect of the survey. "However, even at a large company, it only takes a few people to do the redesign. The key is having a process that fosters the buy-in."

What Was Surveyed

The 167 companies that participated in this survey were first asked whether they had recently redesigned their planning process, and if they answered no, if they planned to do so in the next three years. More than 120 companies said they had or were planning to launch a redesign. Participating companies represented a broad spectrum of corporate America, including large and small enterprises from a variety of fields.

After answering the status questions, the companies were then asked if they used a software planning system, and what forecasting method they implemented. The six options given were: Rolling Forecast, Balanced Scorecard, Customized Approach, Zero-Based Budgeting, Value-Based Management/EVA [R] and Activity-Based Budgeting (see accompanying box).

After providing that background, the survey gathered data on company expectations, as well as results of the redesign. Lastly, it asked participants to analyze the factors contributing to the success or failure of the redesign. Serven says the meat behind the survey results lie there, and that the final analysis, to be released in an executive report from the Research Foundation later this year, will answer several more questions.

Top Quartile = Broad Scope and Objectives

In evaluating each company's assessment of their redesign's effectiveness, participants graded the results on a five-point scale. The relationship between the top quartile, those most satisfied, and the bottom quartile, those least satisfied, presents an interesting study in how to hit a "home run" in redesigning the planning function, Serven says. Companies that felt the redesign was successful had a more ambitious scope for the redesign, as well as broader objectives.

The scope of successful redesign projects is best embodied in the following statistic: Of the nine components available for inclusion in the redesign -- Forecasting, Budgeting, Operational Planning, Management Reporting, Performance Management, Strategic Planning, Rewards/Compensation, the role of Finance and Technology -- top quartile companies incorporated five of these in more than 50 percent of the redesigns. On the other hand, bottom-quartile companies incorporated only budgeting in more than 50 percent of the redesigns. Therefore, pinpointed efforts are clearly less effective, while broader plans that bring in more of the operation are generally better. Serven says he was surprised that rewards and compensation were included in only 33 percent of the top quartile redesigns.

"I was a little surprised because if people don't have skin in the game, there is little motivation to participate in the plan," he says. "Maybe I shouldn't have been surprised, because finance sees rewards as strictly an HR (human resources) function, but the secret here is to collaborate with HR and get its input." Supporting that point, he adds that satisfaction levels were generally higher when rewards were tied to the redesign.

The same trends emerge for defining broader objectives. Companies in the top quartile included six goals in their redesign, while the bottom quartile included only three. The nine objectives participants could choose between were: Improve Decision-Making, Improve Predictability, Provide Executives with a Management Tool to Manage their Business, Provide Valuable and Actionable Foresight, Reduce Cycle Time, Improve the Transparency and Competency of Information, Improve Operational Results, Reduce Resources Required and Improve Support from Finance.

Why Did It Work or Fail?

More than 80 percent of the top quartile attribute their redesign's success to two factors -- support from senior management and well-defined goals and objectives. Close behind these two was "clear understanding of current issues," identified by 78 percent of the top quartile.

The bottom 25 percent had no such dominant issue. In fact, the blame for dissatisfaction was spread among almost all the reasons; only "lack of organization buy-in" appeared on more than 50 percent of the responses. The other identified drivers of failure were: Scattershot Project Planning, Ill-defined Goals and Objectives, Incomplete Understanding of Current State, Lack of Visible Support from Senior Management, A Finance-Only Redesign Team, Lack of Process Flow-Mapping and a Disengaged Steering Committee. Each of these reasons garnered between 10 percent and 45 percent of the responses. Participants were given a chance to select "other," and more than 11 percent did so.

Preliminary findings from the survey will help address the various concerns and issues, and answer some questions about how processes succeed or fail. However, certain questions remain to be answered, and those will likely be in the executive report to be produced from the final analysis. Questions that will be targeted with that report include:

* What specific factors drove the success or failure for each of the planning approaches?

* What role did technology enablers play in the success of each of the approaches?

* Given specific objectives, such as reducing cycle time, which approach would be best?

* Was the scope of each approach materially different? How did each do against the focus?

For further information on the survey, contact Lawrence Serven at [e-mail]. To purchase a copy of the executive report, Solutions For Better Planing, visit www.fei.org/rf.

George B. Moriarty is a former senior editor for the FEI Research Foundation.

Major Lessons Learned

When we asked about what contributed to the success of their redesign,
here's what the Top Quartile told us:

                                           % of top quartile including
                                    this factor as a driver of success

Support from Senior Management                                     83%
Well-Defined Goals & Objectives                                    83%
Clear Understanding of Current
 Issues                                                            78%
Organizational Buy In & Commitment                                 67%
Formalized Project Planning &
 Management                                                        61%
A Cross-Functional Redesign Team                                   39%
Active Steering Committee                                          28%
Documented Process Flow Mapping                                    11%
Other (*)                                                           6%

(*)"A strong project leader"

Source: Buttonwood LLP

RELATED ARTICLE: DEFINING THE APPROACHES

Buttonwood provided the following brief definitions of each approach so participants could be clear on which they were using.

Rolling Forecast

The objective of Rolling Forecasts/Continuous Planning is to make planning more than a "once a year, one time" event, which can turn a plan into quickly forgotten and irrelevant credenza clutter. There was a range of responses around how this approach has been implemented. Some companies employ a rolling four-quarter or six-quarter forecast, which simply means that each quarter the company projects four or six quarters ahead. Others companies finalize an annual plan, then review it on a monthly basis and re-project the balance-of-the-year expected results (while sticking to a more traditional calendar for planning the upcoming year).

Balanced Scorecard

The objective of a Balanced Scorecard is to measure key non-financial, forward-looking or predictive metrics (while still providing more traditional financial measures). Some companies strictly adhere to defining measures for all four quadrants of the classic Kaplan & Norton model -- Financial, Process, Customer and Innovation/Learning. Other companies have loosened the definition, and created performance scorecards to capture non-financial or operational metrics. The real innovation with this approach is that it gets managers to think beyond purely financial measures

Customized Approach

A customized approach can include any combination of planning methodologies, but most often includes aspects of Balanced Scorecard (also known as "Performance Scorecard") and Continuous Planning. While any organization can opt for a "clean slate approach," the final design usually includes at least some aspect of the five approaches to better planning examined in this survey (although the organization might not even be aware of it).

Zero-Based Budgeting

The objective of Zero-Based Budgeting is to "reset the clock" each year. While a traditional budgeting process allows managers to start with last year's expenditures and add a percentage for inflation to develop the next year's budget, Zero-Based Budgeting implies that managers need to build a budget from the ground up, building a case for their spending as if no baseline existed -- to start at zero.

Value-Based Management/EVA

Value-Based Management (VBM) or Stern Stewart & Co.'s Economic Value Added (EVA) is used to determine the "real" shareholder value creation (or destruction) contributed by each business unit or division. Rather than simply taking a profit or earnings number, VBM/EVA assigns a capital charge. The intent is to move managers away from fixating on market share or revenue growth and other traditional measures, focusing instead on creating shareholder value as the "ultimate" objective. In terms of planning, then, the question becomes: "How much shareholder value can this division contribute over the planning horizon, and how will it achieve that goal?"

Activity-Based Budgeting

Activity-Based Budgeting is an outgrowth of Activity-Based Costing, which defines the "real" cost of providing a product or service (internal to the company or external to the customer) by capturing and analyzing how workers spend their time. Activity-Based Costing is often thought of as a highly rigorous approach to allocating costs, and can be used to refine pricing models (especially when price is set based on underlying costs), improve profitability analysis and so on. Activity-Based Budgeting uses these same models, and, given projections for volume, provides projected costs.