The Information Age has allowed companies to obtain more accurate data quicker and act on it more effectively. Because of that, planning for the full year would be only part of the planning process for some businesses. Changing those plans sooner, rather than later, could be more helpful, as information becomes available.
There is a new term that is giving many businesses an edge in their planning process. It is called adaptive planning. According to the research firm Nielsen, the process is very impactful.
Year after year, companies take significant amounts of time to develop and implement their plans, hoping those plans, when implemented, will result in better performance for their company. According to Nielsen, many of these companies find out the hard way, that their plans are already outdated because of changing markets, before they have a chance to implement them.
In their study, decision-makers adjusted their plans throughout the year seventy-two percent of the time. Nielsen dissected those adaptive planners as proactive or reactive in their usage of an adaptive plan. Of the seventy-two percent, thirty- three percent reacted to market changes and sixty-four percent saw increased competition in their market segment, allowing them to be pro-active.
While traditional strategic plans are higher level in nature, many companies of today are finding themselves having to shift from just planning to a mindset of planning and enabling. Employees who are ‘in the trenches’ or ‘on the ground’ are being empowered more and more with the authority to make ‘on-the-fly’ adjustments in an effort to be more responsive to changing market demands.
Nielsen went on to stress the importance of being flexible as part of company growth. They encouraged companies to develop and/or analyze key data metrics, looking for changes in direction, then changing the plan. They encouraged companies to provide their teams with the “right level of analytics.” The intent was to work with various teams, to help them better assess the unique dynamics they were facing, identify relevant metrics that would help them identify market changes, then empower them to make more decisions.
Author Norm Brodsky, in an article for Entrepreneur magazine, wrote about adaptive planning in relation to one of his investments in a restaurant chain. He summarized the planning process quite well when he said “It’s rare, I’ve found, that you’re able to stick to the plans you make when you’re starting out in a new business. Something almost always comes up that forces you to change course. It could be an obstacle, or it could be an unexpected opportunity. Either way, your plans often need to be rethought.”
Brodsky and his partners found a location for their restaurant, but it was not producing what they thought it should. In other words, it was not generating the revenue level of the other two restaurants. Once they did the analysis which determined their particular location had minimal foot traffic for lunch, they changed their plan and developed a campaign directed to local residents which involved copies of the menu, leaflets, and coupons. Then they discovered another problem, local residents did not like going out in the evening. So, Brodsky said, home delivery was the next change. “Uber got into the act, and offered a service that…… would handle the delivery. GrubHub soon followed suit.” Home delivery ended up solving their problem.
Historically, Shell Oil, has used a variation of adaptive planning since 1965. They call it scenario planning. In an article for the Harvard Business Review, authors Wilkinson and Kupers go on to explain, the company uses “stories, not predictions…..that are designed to help break the habit, ingrained in most corporate planning, of assuming that the future will look much like the present.” The company creates a storyline of uncertainty, which then requires the analysis of data, resulting in a conclusion and recommendation for implementation. The only piece missing in the equation is the implementation part, since it is only a scenario.
The authors noted that the “numbers flow from the stories, rather than the other way around.
Once you develop your annual plan, there needs to be a concerted effort in differentiating/determining what your plan is calling for and what your actual key business indicators are telling you. Reconciling those discrepancies is called adaptive planning. In the markets of today, if you can develop those key indicators and be pro-active in using them, your business can achieve tremendous growth.