Integrative Business Planning: Managing Complexity

Introduction

Business planning is typically done when a business plan is needed for financial purposes or to be used as a guide for running and growing a business (such as a start-up or for the next period of time). Many crucial features of a business must be addressed and balanced in this planning process. Various options, issues, and risks associated with these features will be considered.

Entrepreneurs often assume that one variable has a linear relationship with another (for example, $x marketing spend will generate $y sales revenue). However, business is rarely that simple. Many multidirectional relationships tend to occur between the various features. Sales, for example, would also be influenced by the quality of the product, the price, etc. Sales, on the other hand, will influence future expansions. Coping with this phenomenon requires an integrative business planning process.

Crucial issues in business planning

Every business is different, and crucial issues in one may not necessarily occur in another. What is important, however, is that business planners ensure that they analyze and plan for all features relevant to their specific business. This would normally include the issues highlighted below.

• The business- It is essential to ensure that the opportunity, the business concept, its products, services and strategies and the industry in which it operates are strong.
• Marketing- The marketing strategy must be considered. This includes things like price and promotion.
• Market research – This is a crucial issue that is often neglected. It is important to know and understand the customers, the size and trends of the market, and who the competition is.
• Development – All issues related to the development of new products, services, markets and facilities must be planned.
• Operations – All aspects related to the what, where and how of operations must be considered.
• The team – The management team must adapt to the requirements of a company. It would be preferable to establish what skills/jobs are needed and then link people. Where there is a lack of skills, training programs can be implemented and new people can be hired. The entire organizational chart and composition of the board of directors, management teams, etc. you have to plan.
• Finance – Finances are the ultimate criterion of business success, but they cannot stand on their own. Significant financial issues typically include investment, financing, and dividend decisions and policies. It is also crucial to plan turnover (sales), gross profit margins and cost control (expenses). The relationships between these issues (financial reasons) need further planning to establish whether the business will be profitable, liquid and solvent. Return on investment (ROI) and sustainable business growth would be, for example, specific aspects to consider.
• Risk management – It is necessary to determine, analyze and address the various risks that arise. It is necessary to eliminate fatal defects. Operational and financial risks can often be hedged. This would incur certain costs and strategies, such as manufacturing in multiple countries and buying and selling futures and options in different currencies.

The complexity of detailed business planning

A quick review of the brief summary of critical issues to consider gives an idea of ​​the complexity involved in business planning. If we only look at financial issues, we will see that the price will have an impact on sales (turnover). The lower the price, the larger the physical volumes will typically be (except if the image requires a high price). However, the turnover and total profits will not necessarily be higher. There is usually a delicate balance between price, sales volume, turnover and profit.

To complicate this further, billing, costs and profits, and timing all have a direct impact on the company’s cash flow (a very critical issue). This whole aspect is further complicated by investment decisions (capex), financing (equity or debt?) and dividends. Spending too much on a plant, carrying too much debt, and paying too much to shareholders will have a negative effect on the company’s sustainable business growth and reduce achievable targets. This scenario shows only a part of the various aspects that need to be balanced within the broader financial sphere.

Unfortunately, the complication of the example does not end with finances. Finance influences many other crucial aspects of the business. On the other hand, many of the other crucial aspects also have an effect on finances as well as each other.

Financial decisions, for example, would have a direct relationship to business growth (eg, geographic expansions and new product development), marketing spending, and employment and people development. All of these issues would have a similar impact on financial issues and each other.

An Integrative Business Planning Approach

The general trend in business planning would be to approach each problem independently and then just add the pieces together and replan if something doesn’t make sense. Business planning often begins with some projected revenue and profit figures in mind. From there, everything works backwards.

A much better option would be to have an integrative approach to business planning. For this the following steps are needed:

1. Determine all the outstanding characteristics of the business.
2. Determine the relationships between these salient features.
3. Try and solve each feature taking into account casualties and effects with other features.
4. Use what-if questions to create better holistic solutions.

Summary

The idea in business planning is not to optimize one aspect of the business and neglect or ignore some of the others. The various relationships (causes and effects) must be addressed in an inclusive manner. One crucial salient feature or relationship that is ignored can jeopardize the existence of the entire business.

Copyright © 2008 by Wim Venter. ALL RIGHTS RESERVED.