Prof. Dr Andreas Krüger

lec­tures busi­ness infor­ma­tion sys­tems at the Uni­ver­si­ty of Applied Sci­ences in Rosen­heim, Ger­many. He has worked in BI-con­sult­ing for more than 15 years and has been lead archi­tect in sev­er­al inter­na­tion­al cor­po­rate plan­ning projects.

André Müller

is Man­ag­ing Part­ner and CEO of Stam­pa Group. He has more than 20 years of expe­ri­ence in senior finance posi­tions and man­age­ment con­sult­ing. He was a CFO in South Korea, con­troller in Japan, head of account­ing of a sub­group and vice pres­i­dent finance sup­ply chain EMEA among others.

cor­po­rate planning

Effectiveness Traps

By Andreas Krüger and André Müller / Illus­tra­tion: Anne Lück

The grow­ing demand for for­ward-look­ing ­infor­ma­tion – inter­nal­ly, but espe­cial­ly ­exter­nal­ly in cor­po­rate report­ing – will put a sharp­er focus on inte­grat­ed cor­po­rate ­plan­ning. Expe­ri­ence shows that the intro­duc­tion of effec­tive plan­ning process­es is a big chal­lenge in many organizations.

From an investor’s point of view, the antic­i­pa­tion of the future devel­op­ment of a com­pa­ny is of great impor­tance. Com­pa­nies com­ply with this require­ment by pub­lish­ing plan­ning data on KPIs that at the same time rep­re­sent some of the key objec­tives in inter­nal report­ing. Thus cor­po­rate plan­ning, pre­vi­ous­ly a rather inter­nal instru­ment, is also mov­ing into the focus of cor­po­rate report­ing. In many com­pa­nies, plan­ning process­es are far from being opti­mized. Gath­er­ing and con­sol­i­dat­ing accu­rate plan­ning data con­sumes a lot of time and resources, where­as the accu­ra­cy of plan­ning data quite often proves to be rather poor. The imple­men­ta­tion of IT-based plan­ning tools seems not to have brought the improve­ments that were hoped for. What makes plan­ning process­es so dif­fi­cult to opti­mize? In our expe­ri­ence, one imma­nent prob­lem of cor­po­rate plan­ning is con­fus­ing effi­cien­cy with effectiveness. 

Plan­ning the right things 

Plan­ning is not a pur­pose in itself. The main pur­pose is to gen­er­ate a pro­jec­tion of the future devel­op­ment of a com­pa­ny. It is the basis for man­age­ment deci­sions, inter­nal tar­get-set­ting and con­trol­ling. It is also the basis to ful­fill the grow­ing demand for for­ward-look­ing infor­ma­tion by exter­nal stake­hold­ers. Plan­ning is only effec­tive if it serves these pur­pos­es. Thus the iden­ti­fi­ca­tion of the spe­cif­ic pur­pose of plan­ning has to be the first step in any process re-design. This is a chal­leng­ing task, as infor­ma­tion require­ments by inter­nal deci­sion mak­ers and exter­nal stake­hold­ers are sub­jec­tive and dynam­ic. Mod­ern plan­ning tools allow almost any require­ment pos­si­ble. This opens what we call “Effec­tive­ness Traps” (see fig­ure). They result from the inten­tion to cre­ate a process that can ful­fill as many poten­tial future require­ments as pos­si­ble. Over­look­ing them will result in over­ly com­plex, inflex­i­ble processes: 

1. The com­plete­ness trap 

An under­ly­ing belief in many plan­ning projects is that a com­pa­ny needs all func­tions to be includ­ed in plan­ning, so that the result­ing data is com­plete and con­sis­tent. As under­stand­able as this aim is, it can be the ini­tial cause for an ever grow­ing com­plex­i­ty. For exam­ple one could think that plan­ning rev­enues is not enough but needs to be val­i­dat­ed by also plan­ning prices and sales vol­umes. Not only assets might be planned, but also invest­ments and orig­i­nat­ing depre­ci­a­tions, so that there are no incon­sis­ten­cies in the derived data. If this com­plex­i­ty is not yet a prob­lem by itself, it can eas­i­ly lead into fol­low-up issues.

2. The inte­gra­tion trap 

Mod­ern plan­ning sys­tems can enforce inte­gra­tion between plan­ning top­ics. If invest­ments are planned, depre­ci­a­tions can be cal­cu­lat­ed and direct­ly syn­chro­nized with P&L plan­ning. Plan­ning of head­counts can be inte­grat­ed with cost and cash flow plan­ning etc. Achiev­ing a high lev­el of inte­gra­tion between a num­ber of func­tion­al areas is fas­ci­nat­ing but will lever­age com­plex­i­ty, because it forces you into ever more detail. For exam­ple a direct inte­grat­ing between bal­ance sheet and cash flow plan­ning might require to add the detail of move­ment types to bal­ance sheet plan­ning in order to cor­rect­ly dis­tin­guish cash rel­e­vant from cash irrel­e­vant bal­ance devel­op­ments. Inte­gra­tion there­fore needs to be defined with care. Max­i­mum direct inte­gra­tion is not nec­es­sar­i­ly what is required for effec­tive cor­po­rate plan­ning and report­ing.

3. The detail trap 

Plan­ning by def­i­n­i­tion has uncer­tain­ty in it. It is a com­mon mis­un­der­stand­ing that more detail auto­mat­i­cal­ly means less uncer­tain­ty and more accu­rate plan­ning data. Detailed plan­ning in fact only makes sense if it serves a pur­pose, e.g. if these detailed data are required for inter­nal deci­sion sup­port or devi­a­tion analy­sis. Oth­er­wise more detail does not add effec­tive­ness, but will even reduce data accuracy. 

Over­com­ing traps for bet­ter cor­po­rate plan­ning – and reporting 

A pure­ly tech­ni­cal approach should be avoid­ed when opti­miz­ing cor­po­rate plan­ning, as this usu­al­ly puts the focus on effi­cien­cy, not so much on the effec­tive­ness of plan­ning. A process is effi­cient if its out­put is achieved with the least pos­si­ble effort. IT can bring fun­da­men­tal ben­e­fits, but even though mod­ern sys­tems are used, the per­for­mance of cor­po­rate plan­ning will remain poor, if inef­fec­tive process­es are cement­ed inside them. As for­ward-look­ing data becomes more impor­tant for cap­i­tal mar­ket par­tic­i­pants, exter­nal report­ing require­ments and the inter­nal cre­ation process has to be con­sid­ered right from the begin­ning. Where­as plan­ning was mere­ly con­sid­ered an inter­nal top­ic with­in strat­e­gy, finance and busi­ness devel­op­ment, the cor­po­rate func­tions of account­ing, investor rela­tions com­mu­ni­ca­tions and sustain­ability will be more involved in the future. This demands from com­pa­nies to even more care­ful­ly look at their process­es and the traps men­tioned here to guar­an­tee effectiveness.

Effec­tive­ness traps in cor­po­rate planning