Integrated Planning Amidst the Headwinds

By Katie Liebel and TV Kumaresh

September 2022

As we head into the year's final quarter, ‘tis the season for 2023 integrated planning at most companies. Financial modeling, complete with an array of interest rates, inflation assumptions, and demand drivers, will be in full swing, followed by robust action planning for the various scenarios.

Given the economic headwinds, the planning emphasis will logically tilt more to profitability over growth. The environment will require ruthless prioritization to deliver more from less. While the focus turns to efficiencies, some investments in future strategic bets must remain. This calls for targeted cost-saving efforts while re-investing some of those savings into growth plans. At the C-level, we believe there are three questions to inform the balanced path to a robust 3-year plan.

  1. What is the targeted investment plan to expand the top line?

Invest in alignment with the strategic direction – focusing on the target segments and building competitive capabilities. The investment plan must be precise and also a bit agile. While balance sheets are likely constrained, there might be opportunistic areas for M&A. Tips on driving to the best planning outcomes:

  • Prioritize investments in alignment with a very granular strategy. In any scenario, but particularly in a scenario with limited resources, the business needs to have clarity on where NOT to invest, just as much as where TO invest. The investment thesis will remain vague and returns insufficient without enough granularity in the strategy (sub-segments, micro-markets, capabilities).

In one situation, the strategic area of focus was declared as the Commercial segment in the banking market. However, the ‘small’ customers, as opposed to micro or mid-sized customers, were really the source of profitability for the organization. Without sufficient clarity on underlying business dynamics, the bank would have increased sales resources in an area that was not in position to contribute to the bottom line.

  • Do not gold plate, even in areas of strategic growth. It can be tempting to heap money upon the hottest trends or pet projects. In one case, investments continued to go into adding service features for customers without enough diligence on actual customer needs/usage. While the intent was to delight the customers, the result made the customer journeys complex. Customers want simple, easy, and effortless. Anchor incremental investments in the strategic objective, measure the desired outcomes, and don’t ‘overshoot the mark’.

  • Invest in pricing specificity and review pricing mechanisms. In these times of increasing cost pressures, granular pricing can make a significant impact. Price leakage is one key area to address in B2B situations. In one such case, pricing variations at the customer level, contract language, and elasticity analysis indicated that the company left meaningful revenue share on the table due to historical practices implemented. Following the updated pricing practices generated a revenue lift of ~5% within one year, with minimal impact to retention.

  • Keep the funding approach agile. To capture opportunities in a volatile environment in a timely fashion, keep some funding (~10-15%) at the “top of the house” to allow for investment in new and viable ideas (aligned to strategy) during the course of the year. The agile approach should also work in stopping things, for example when the trajectory does not give confidence for a period of time.

  1. What is the thoughtful efficiency plan so as to NOT just declare “x%” cost reduction across the board ?

Efficiency and simplification efforts, when applied with sufficient rigor, can help fund the strategic initiatives discussed above. In the quest to drive to a more efficient cost base, ensure the expense trade-offs align with the strategic direction.

Tips as the plan gets built:

  • Take advantage of structural trends. The marketplace has changed dramatically over the past couple of years in areas such as remote work, increased service interactions via digital channels, reduced business travel, etc. Ensure cost savings associated with these changes are explicitly banked.

  • Outsource areas where prudent. Seek to gain operating efficiencies by outsourcing where there is insufficient differentiation, limited supply chain risks, and sufficient suppliers at scale. For example, many banks and insurance companies still maintain customer communication and statement operations internally. Digital communication providers invest hundreds of millions to drive to state-of-the-art capabilities and scale in this area, far exceeding what most companies can achieve on their own - both in terms of costs and customer experience.

  • Remove any “waste” in the system, for example, multiple experiments with the same objective and duplication of activities. This is only achieved with a cross-functional view, and not biased in “the way we’ve always done it”. With the same eagerness that children hunt for Easter Eggs, ask a neutral team to identify areas of duplication or lingering efforts, lacking results that could be candidates for elimination.

  • Ensure the largest cost areas have targeted efficiency plans that ALIGN with the strategic priorities. All too often, the cost reduction efforts are disjointed from the strategic goals. For example, one organization sought to reduce digital marketing spend by 40% and yet held a growth expectation of new millennial customers of 25%.

  • Be ready to divest if not the natural owners of the business. The ideal would be to do so in good market conditions. However, the focus will help to get ready for the next upswing.

  1. What organizational processes and safeguards can increase the likelihood of achieving planned results?

Everyone has seen the ‘hockey stick’ plans that move from years of decline to sudden prosperity. Rarely does an organization look back and learn from past aggressive mis-forecasting. While it’s important to stretch, the plans must be achievable. Tips to ensure planning is grounded in accountability and prudence:

  • Confirm growth expectations are feasible. Often, a company’s growth expectations imply an impractical growth in market share that goes undiscovered. The team must take a view of market and competitor expectations and cross-check growth expectations in that backdrop. Ensure the market share growth expectations are clearly noted in plans to be able to affirm validity. Check for historical market share gains to pressure test future assumptions and validate “what would have to be done differently to change trajectory.” Too often, these high growth expectations mask the need to plan for cost reductions.

  • Actively review and keep in check, the projects under the “non-measurable” benefits bucket (and yes, in some situations, this is a regularly used category !!). In one case, this category was close to 25% of total project spending and existed only due to the organization's lack of proper accountability and measurement practices.

  • Hold leaders / sponsors accountable. Provide the next tranche of investments to teams with a track record of delivering benefits over the past years. A robust benefits tracking mechanism needs to be in place to help such prioritization. At the right organizational levels, incorporate outcome delivery on critical projects as a component of leader performance reviews.

  • Build proper measurement systems. To make all the above work, build the financial guardrails (return expectations), Objectives and Key Results / KPI measurement systems, and milestone (“what by when” by quarter/month) tracking reports. Establish sufficient forums (e.g., quarterly) to review benefits trajectory (financials/ milestones/ KPIs) with sponsors to support accountability and facilitate resource allocation discussions. In most cases, it is the role of the Transformation or Project Management Office to build and manage these measurements and cadences.

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Every year now offers a new set of challenges and opportunities. While COVID marked 2020-2021, 2022 has seen rising inflation, interest rates, and economic uncertainty. Planning for 2023 and the following years will require a clear vision of the future strategy and a high degree of agility. Irrespective of macro scenarios, it is time to prioritize rigorously towards strategic growth areas, do more with less, and, most importantly, elevate accountability as part of the culture.