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Summary
Integrated Business Planning (IBP) is a relatively new term for a longstanding objective of finance and corporate executives: to bring together the disparate strands of forward-looking activities across an organization so as to improve internal alignment, enhance agility and ultimately increase its financial returns and improve its strategic position. Especially in larger companies, fragmented planning efforts prevent companies from achieving these goals. Not having achieved IBP, they miss opportunities to sell more, incorrectly allocate their resources to less productive or less profitable activities and react too slowly to changing market conditions. Being able to do integrated business planning well requires software that enables people to assess performance trade-offs at each level of the planning process, from high-level strategic decisions all the way to resolving day-to-day issues. Most products today focus on the latter, solving only one or two problems at a time. In contrast, River Logic’s flagship application, Enterprise Optimizer (EO), delivers enterprise-wide integrated decision-making capabilities. The software’s modeling engine can reveal both the costs and the benefits of multiple simultaneous strategic decisions. It also builds roadmaps that can aid in aligning operational activities and processes across the enterprise, from product mix, capital investments and mergers and acquisitions to pricing, margins and opportunity analysis. Ventana Research believes that River Logic’s software can provide an important strategic element to a business’s performance management portfolio.

Assessment
Companies trying to optimize their business planning processes often run into a problem: How do they bring together all of the important operational and financial data they need to make consistently well-informed and well-thought out decisions – data that will enable managers to understand the impact of the trade-offs they are contemplating so they can making decisions that are aligned with company strategy rather than business unit objectives? Most find it difficult to model and measure the often complex interactions between all of the operational elements (chiefly sales, distribution, and production) on the one hand, and financial considerations (such as revenue and profitability) on the other. This, in turn, makes it difficult to manage to a common set of goals across the enterprise.

Our research shows that companies that invest in performance management typically deploy software to solve problems in areas such as sales performance, operational performance or financial planning and budgeting. However, technology is available that can capture all the major performance-related assumptions, quickly perform optimized what-if scenarios for all the major activities of the business, and deliver integrated business planning decisions across the enterprise. This evolution of new business performance software provides information to support better informed decisions and shorter decision-making cycles that companies have sought for years. One such product is the Enterprise Optimizer from River Logic. It enables companies to do planning that spans strategic and tactical planning, supply chain optimization and product and customer profitability. It supports operational planning and predictive modeling in a way that enables executives to see the full financial impact (profits, cash flow and balance sheet) of various options. It also supports sales and operations planning and offers integrated scorecards to assess performance to objectives across the company.

The heart of any business planning application is the underlying model. While a single view or modeling method may be adequate for relatively limited and straightforward planning, it is always better to see answers from multiple perspectives. This is particularly true for integrated business planning, since different parts of a company (say, finance and manufacturing) will be looking for different sets of information. Most financial planning applications present a limited range of data views or a small number of preprogrammed analytical methods. Enterprise Optimizer, on the other hand, offers dozens of analytical methods, including linear, nonlinear and mixed integer programming, advanced heuristics, simulation and constraint-oriented reasoning.

The software integrates these built-in analytics with a range of business evaluation methodologies, including net present value, economic value added, key performance indicators (KPIs), Balanced Scorecard, activity-based costing and Six Sigma. Enterprise Optimizer creates a visual representation of the organization that managers can use to generate hundreds of what-if scenarios to determine which will produce the most desirable impact on corporate goals and objectives. With a correctly built model, the software can help resolve critical business issues such as rank-ordering how products contribute to corporate goals and objectives and where they should be produced; where a company can allocate capital expenditures to optimize financial goals and objectives; the impact that KPIs such as 98 percent on-time delivery, zero defects and never running out of stock will have on profits, inventory turns and return on assets; what production facilities or production lines the company should expand, reduce or close; the impact of changes in commodity prices or exchange rates; and the right blend of components to optimize financial objectives and which suppliers to buy them from.

River Logic also has integrated EO with the Microsoft PerformancePoint Server and Microsoft Office. This will be a significant benefit for those companies that have adopted or are planning to adopt a Microsoft-centric performance management infrastructure to be able to us its general reporting and analysis capabilities or publish through Microsoft SharePoint.

Market Impact
Financial planning applications from Business Objects an SAP company, Cognos an IBM company, Infor and Oracle’s acquisition of Hyperion are not as robust in evaluating possible trade-offs in integrated enterprise-wide decisions, nor do they provide explicit links between strategic planning and operational processes. River Logic’s EO, on the other hand, can provide accurate what-if planning and optimization based on simultaneous financial and constraint-oriented modeling. Historically there have been very focused applications like Adexa’s Collaborative Operations Planning (COP) and Oracle’s Strategic Network Optimization (SNO) that have constraint-driven resource allocation engines, but they have not offered a large number of evaluation methodologies. Most competing vendors look to solve one or two problems – product mix, network, profit or inventory optimization – at a time, while EO can solve these and many other problems – such as tax planning, capital planning, sales activity, price, margin and profit – either by themselves or simultaneously.

Recommendation
Ventana Research advises companies to take a more integrated approach to their business planning and to use tools that make this possible. Until recently the information technology needed to support this kind of integrated planning was not easy to use. In fact, most companies continue to use stand-alone spreadsheets to manage their various planning processes, even if they have adopted a dedicated budgeting or planning application, because they don’t realize that the limits of spreadsheet technology constrain both the effectiveness of the process and their ability to share information. A siloed approach to addressing performance issues will not deliver strategic value. To complete the three-step performance management process – the Ventana Research PerformanceCycle™ Align, Optimize and Understand – companies need software that not only identifies constraints and root causes of individual problems but models the impact of all strategic actions simultaneously. We recommend that companies seeking to implement a more integrated approach to planning to optimize their performance consider River Logic’s product.