Having just come from a successful breakfast briefing with SAP and a range of customers, one thing above all others seems to be firming up in my mind. A simple set of relationships that has an important conclusion:
In words, the diagram above says that Trade Promotions Optimisation is a large subset of Integrated Business Planning, which is supported by Business Performance Management, and the aims of TPO, IBP and BPM are all the same. Which is a simple statement that has some important consequences.
TPO – more profitable because the retailer’s more profitable
TPO, or Trade Promotion Optimisation is an initiative that many consumer products companies have right now. The volume of product on promotion in retailers is soaring, and it is difficult to see what return, if any, is being derived from trade promotion spend.
Coordinating across product families and customer groups can help understand where the real value is, and help prioritise the allocation of resources in a more competitive environment.
Done really well, TPO can help consumer products companies to optimise not only their profitability, but also retailer profitability. Of course it can, because the best promotions are where both the retailer and the vendor win.
IBP – enabling internal negotiation to meet all customer expectations all of the time
IBP, or Integrated Business Planning is another initiative of the moment. It is working towards the ideal situation where commercial, supply, finance and other functions are aligned internally, and able to effectively negotiate conflicts at all times, to ensure that all customer demands are met all of the time. Oliver Wight has a good way of explaining the key concepts in this area.
Done really well, IBP takes out cost (of working capital, and through process efficiencies), and maximises top line opportunities (through better forecasting, and enabling companies to manage their customers’ expectations effectively).
Within IBP, what I see is companies time and again saying that they have a “great forecast accuracy” over a 3 month horizon, but increasing gaps after that. Why? Because of people and process issues, not system issues. The big gaps are around promotional uplifts, new product introductions, and other business development activities.
Which is a space that TPO plays into a large part of.
BPM – enabling forward-looking conversations to make decisions
BPM, or Business Performance Management, is intelligent use of Management Information / Reporting to understand not only how are we doing on our outcomes (profitability, growth, market share), but also to give us insight on what the key drivers are, and how the different business functions impact on each other.
Typically it uses constructs such as Balanced Scorecard (Kaplan and Norton et al) to enable a team charged with delivering some strategic objectives to tell their story clearly and precisely, to align the business behind them.
Done well, it enables the business to differentiate between outcomes that have already happened, and can’t be changed (such as profitability), and levers that can be pulled, to create next month’s outcomes (such as capability and process effectiveness). It also help people understand where and how to prioritise initiatives (they should influence the objectives in red, not green. Obviously), and the difference between an objective and a KPI.
Most important to a successful BPM process is the upfront people exercise, where the team concerned – which is typically cross functional – is locked into a room and not let out until they agree on a precisely worded account of what they’re trying to achieve, in the form of a strategy map.
This simple, difficult exercise blows away ambiguity. This makes a huge difference to the ability of people reporting into the different members of the leadership team to act in concert.
BPM: supporting IBP: delivering TPO
Which is why, in my humble opinion, you can’t have siloed initiatives for these things. The act of creating a strategy map which frames a BPM initiative, enables the team behind the IBP initiative to line up properly (they may even be the same team), which is in large part driven by / helps drive out the TPO agenda.
And another thing! The sponsor for at least BPM and IBP needs to have cross-functional authority. Which means it’s a CEO agenda item, or at least a General Manager initiative, depending on the organisation.