The ability to merge operational and financial planning as a prelude to better management decision-making and forecasting has been a major preoccupation for businesses of all sizes for well over two decades. But it has remained stubbornly elusive, and many organisations have been forced to plan in functional silos and bring the results together, often in spreadsheets at a summary level. However, the advent of greater computing power, coupled with the possibility of large data models and high levels of budget participants on a single technology and application platform has opened up new opportunities for planning. It is this change in the technology landscape that has made eXtended Planning and Analysis (xP&A) a realistic possibility.
Although the term xP&A was only recently coined by Gartner (October 2020), it is conceptionally very similar to predecessor concepts such as, Integrated Business Planning (IBP), extended business planning and connected planning. The difference now, is that it is technically, operationally and economically feasible for mid-market and larger enterprises to deploy xP&A in an organisation on a modern platform such as Prophix. Indeed, Gartner’s definition relies on “a composite vendor platform and architecture”.
Technology limitations of the past, have meant that many organisations have built up their plans along functional lines – simply because that is the way that people are usually organised. But business processes do not respect functional boundaries. Take for example, the ‘Quote-to-Cash’ cycle. It embraces inventory management, the sales department, logistics and finance functions. The true costs of sourcing a product, delivering it to a customer and getting paid are driven by the process – not by functions. This means that plans in one area need to be consistent with plans in another if resources are to be allocated efficiently and setting a performance objective in one place does not have unforeseen consequences in another.
For example, a sales demand plan can only be executed efficiently if matched to supply and finance. An overambitious sales plan, which exceeds the ability of an organisation to supply or manufacture finished goods, may lead to excessive costs, as the organisation seeks to replenish stock from alternative suppliers or unplanned production runs. This, in turn, may deny other projects the working capital they need. Similarly, a revenue plan in a professional services organisation, such as a law firm, has to be consistent with an HR plan, in order to ensure that there are sufficient fee-earners available to produce the projected billable hours.
The benefits of xP&A are potentially immense. The ability to have a holistic view of performance that is consistent and dependable confers considerable decision-making agility which is particularly welcome in the current business environment. But as we enter a new era of xP&A, organisations need to be mindful of the challenges of implementing such a change.
This new way of working requires complete data mastery and confidence in the quality and integrity of data. But also requires a heightened level of cross-functional collaboration. The change management issues should not be underestimated.
So, is xP&A really new? The answer appears to be that the idea has been in circulation for many years, but the execution of it will require a new organisational model and processes to accompany the profound advances in technology.