The new normal in business has become basically not having a normal, as volatility becomes the order of the day. Setting aside for the moment the novel coronavirus pandemic, companies are increasingly challenged by extreme environmental events, geopolitics and trade wars, and rapidly proliferating regulatory laws that change from location to location. To this, add the more traditional factors such as new market entrants, nontraditional competitors, and disruptive technologies. As one of the world’s most global industries, high tech is particularly affected by these issues because of its global supply chains, distributed R&D and assembly centers, and reliance on a global talent pool.
In this new non-traditional world, planning and forecasting becomes a huge challenge. According to a recent study, 70% of firms in the S&P 500 had to revise or completely withdraw their earnings guidance as a result of COVID-19. Planning over multiyear or even multi-quarter horizons is no longer effective. Companies need to set budgets and strategies over a matter of months or even weeks. They need a different toolset in order to be dynamic and agile enough to address both challenges and opportunities.
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New circumstances need new tools
Dynamic planning and forecasting involves a few key techniques to rethink the process.
Leverage control towers
Dynamic planning begins with using data visualization tools and machine learning to quickly spot and react to changes. Volatility is particularly challenging for high-tech multisite or multinational corporations. With a global supply chain, a typhoon in Taiwan can affect ability to meet supply commitments for a customer in Texas. Organizations need to plan for redundancy so that they can respond to the threat of disruption before it becomes a reality. They can use large data sets and AI-based analytics to run scenarios and be prepared for multiple possible outcomes, or to help identify correlations that might be missed with traditional planning and budgeting.
Adopt a zero-based budgeting (ZBB) mindset
Traditional forecasting and budgeting planning starts with the template from “normal” years, updated for future expectations. The problem is that the term normal has no meaning right now and may not for the foreseeable future. Instead of modifying last year’s numbers to get this year’s annual budget, organizations need to work with shorter-term horizons to understand where they are as a result of changes to customers, workforce, and supply chain.
Consider real estate. With COVID restrictions, a space that once accommodated 500 employees may only be able to fit 50. How do organizations think about spending on facilities, now and after workers return in the future to a socially distanced workplace? To take it a step further, do they need all 50 of those workers in that facility – or do they need all 50 of those workers at all? ZBB provides an effective framework for considering these questions.
ZBB ignores the previous set of numbers. Instead, the budget starts at zero and is built up with costs required to support operations and business needs as they currently stand. ZBB principles enable more frequent setting, realignment of forecasts and budgets and continued focus on value of all costs and investments. It’s a very effective approach to strategic spending in drastically volatile times and re-allocates non-productive resources (from a zero-base) in a way that boosts profitability and future growth.
Integrate and connect the planning process
The traditional silo approach toward planning impedes the ability to adapt. Instead of separating out sales planning from supply chain planning from workforce planning and financial planning, companies should break down the barriers. The integrated approach equips them to respond to change across the organization. They can create a cross functional team to identify changes in the key drivers behind financial performance. The insights from the team can be used to update scenario modeling and related financial forecasts.
Create an adaptive culture and mindset
When it comes to adapting to change, the biggest challenge may not be the hardware and software but the peopleware. By helping team members understand the motivation and benefits behind the new approaches, they will more easily accept and embrace this new dynamic, connected planning world.
Invest in the right infrastructure
The large data sets used for dynamic planning don’t need to be perfect but they should be high enough quality to support reliable modeling. Leveraging the cloud, whether public, private, or hybrid, enables best practices to be recognized and propagated across the business. A key component of this new infrastructure is to invest in the new class of very sophisticated software tools that enable dynamic planning coming from leading companies like Anaplan, BlueYonder and SAP.
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In this new non-traditional world, planning and forecasting becomes a huge challenge. Planning over multiyear or even multi-quarter horizons is no longer effective. Companies need to set budgets and strategies over a matter of months or even weeks.
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Benefits of dynamic planning
Dynamic planning brings important benefits. With a better understanding of the business and surrounding conditions, organizations can respond more effectively. Across our customer base, for example, companies switching to ZBB methods saw one-time cost savings of as much as 20%. Forecasting improves and business performance becomes more predictable, even under unpredictable conditions. Constantly updating scenarios for the real-time impact of changes leads to more timely and effective responses. Product development, the lifeblood of high-tech, is improved as targeted investments lead to accelerated ROI. Reduced planning timelines and better models support agile responses. Most of all, enterprises see increased flexibility and sustainability, even in times of crisis.
In this era of volatility, high-tech companies need to balance long-term development with agile planning techniques that equip them to not just respond to change but address it proactively. The process starts with gathering enough data of sufficient quality to produce trustworthy insights. Techniques like ZBB keep the focus on how to best navigate current conditions. The transformation doesn’t tend to occur organically. It requires top-down leadership and a structured investment program to develop these capabilities. It’s also essential to remember that planning should be a process and not just a periodic activity. Change response needs to be integrated into the corporate DNA of high-tech organizations to enable them to pivot toward success, even in the most difficult of circumstances.
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