Businesses nowadays not only have to tackle an economic slowdown, but also have to create value for stakeholders, from employees to customers to social and environmental advocates. Consequently, having the capability to accelerate value creation is critical.
However, we often notice missed opportunities that result from a focus on risk aversion and stabilisation rather than creating value. Strategic planning and business forecasting can help management execute such value creation goals.
Even though forecasters believe the Thai economy will perform better this year than in 2023, the recovery seems poisoned with uncertainty. The difficult environment includes tight monetary policy, unsustainable government policies (high public deficits), a global economic slowdown, geopolitical conflicts, and rising bubbles in bonds, loans and real estate prices. These uncertainties complicate efforts to build accurate forecasts and develop effective strategies.
Traditional planning and forecasting methods don’t seem able to grasp the blurred outlook. They are too narrow and linear to deal with so many uncertainties. Many rely on outdated assumptions, hampered by inflexible processes that make it difficult to respond with the necessary speed.
This is not very reassuring when we are facing such fundamental uncertainty. As a business, how do you swiftly adapt your operations and strategy to this constantly shifting context of very different, yet equally possible future scenarios?
ROADBLOCKS TO INTEGRATION
Planning and forecasting processes need to adapt and must be embedded within any strategic changes implemented across organisations. Most business leaders understand that effective planning and forecasting involve an integration process for connected functions, but major roadblocks remain. These include disconnected systems, lack of standardised procedures, organisational structure, and management commitment as well as lack of collaborative culture.
Connected planning is the process of integrating the plans across functions to enable improved insights and reduce information silos. It can benefit an organisation by improving forecast accuracy and providing efficiency gains. Our survey results indicate there is a strong positive correlation between the number of functions connected and the accuracy of the forecast.
To enable connected planning, businesses should have a single set of data that allows organisations to link operational and financial data, collaborative ways of working across different planning functions, and alignment of processes across the organisation. This includes planning calendars, business drivers and business hierarchies, as well as, where appropriate, using cloud-based tools and technologies to help connect everything.
Scenario forecasting accounts for different plausible futures to help anticipate a wide range of possible outcomes. Based on discussions with business leaders, we are seeing increasing focus on building scenarios and thinking through their implications on the business. We suggest businesses think about multiple futures.
It is crucial to understand that such a broad scope of projections is not a traditional linear forecast between worst-case and best-case. Several scenarios have a reasonably high probability of materialising. Forecasting is not about getting rid of uncertainties, but rather dealing with them. Precisely define these scenarios, characterise the threats and the opportunities they represent for your business, and quantify their potential impacts.
Once we have detailed the scenarios and financial impacts, we can develop appropriate action portfolios for value creation: operational and financial impacts, investments and timelines will be identified and prioritised. To make the action portfolio more responsive, specific triggers or thresholds can be assigned to individual actions.
We have seen that recent identified action portfolios for unlocking value involve cost management to improve margins and are data-driven to grow revenue.
Cost management isn’t about squeezing out greater cash flow or drastic cuts that damage a business.
We have witnessed recent instances in which aggressive traditional cost management affected market share, product development and competitive positioning, which often runs counter to the intent of value creation. The goal of value-creating cost management is to find a better way to seek out the cost advantages that come from more fundamental changes in how a business operates.
Once you have a clear view of potential threats and opportunities, it’s time to determine the path you will take from the starting point of making a business model assessment — where you stand in terms of cost competitiveness, what should be changed and what should be preserved — up to the point of reaching that final state of success.
Prioritised actions depend on a company’s size, maturity of cost modernisation, and appetite for longer-term investment.
USABLE DATA CRUCIAL
Data-driven growth is about driving sustainable revenue growth by making optimum use of data-rich environments. Not all data is equal in importance, but it should be equal in usability.
Data should address strategically identified needs — such as financial, operational, sustainability or whatever we value — based on the industry and operations.
Newly accessible datasets and analytic capabilities are now important to inform strategic decision-making and for providing new channels for customer engagement and acquisition.
The ability to take full advantage of big data gives organisations the agility and efficiency to uncover and monetise new market opportunities, especially across digital channels. Clustering of customer data provides better understanding of what customers want.
This infusion of data into sales, marketing, and even product development can lead to increased opportunities to penetrate new markets, cross-sell and improve customer experiences.
Kamolwan Chunhagsikarn is a partner in value creation services, turnaround & restructuring with Deloitte Thailand.