Integrated Business Planning - External Forces
This is blog 7 in a series of 9 on the topic Integrated Business Planning (IBP). In these blogs we will detail our IBP Framework, the importance of a proper IBP implementation and the benefits it can bring organisations. Topic of this blog: Competition – Social & Economics – Risk & Opportunities – Laws & Regulations.
For any organisation to work well and achieve their goals, it should be aware of external forces that will have an impact on the strategy. In this blog we will discuss the four most important ones for the IBP process:
- Competition
- Social & Economics
- Risk & Opportunities
- Laws & Regulations
These external forces are difficult to control. They exist in the realm outside the organisation and to apply influence is very difficult. These forces can change from one moment to another, without warning. In each case, you have to have a good understanding what these forces are and how they might impact your business. The better you are prepared, the easier it is to adapt.
Competition
With competition we define the competition for your product/ service in the broadest sense. For example, your company might produce apparel for the active lifestyle. Your competition might be other manufacturers of apparel, but also companies that compete with the time spent, so for example a movie theater. Instead of hiking outside, you might want to catch a movie.
Competition will always be there and should be beneficial to your organisation. Due to this competition, you stay on your toes and do not take anything for granted. But this competition is always aiming to take your market share, your customer base by introducing newer products/ services or competing on price. So any changes in the way competitors do their business, should have your full focus and attention. Stay alert on their moves and be able to counteract quickly where needed.
On way to deal with this is to stay ahead of the curve, to outsmart your competition. Instead of following, you define the pace of innovation, competition needs to follow. The best way to make sure your strategic goal is achieved, is to dominate the market and let the others follow.
Social & Economics
Social & economics is everything your buyers experience in the social domain or the economical domain. Social domain:
- Trends: does your product/ service rides the wave of a current trend?
- Employment: is employment increasing (good sign) or decreasing? People will invest less if they get the feeling the economy is in a decline. No need to say that getting unemployed does have a severe impact and will influence someone’s spending behaviour.
- Income: the higher the income, the more money can be spent on luxury goods and services. If your company operates in this section, you want to predict the number of buyers that can afford you.
Economical domain:
- Economic outlook: is the market in a recession, downturn? This will impact your sales.
- Inflation: are prices increasing? This will impact your business.
- Interest rates: interest rates can affect borrowing costs, making it financially more risky to invest.
Again, these social & economical forces can hardly be influenced, are a fact of life. But as a company, you have to deal with these. So make sure you scan the market on a regular base and collect/ buy market data to analyse and ‘foresee’ upcoming trends and economical behaviour.
Risk & Opportunities
Risks and opportunities cover both side of the spectrum: what can hurt you (risks) and what might benefit you (opportunities). The same goes for this category compared to the others: you have little to no control, but if these occur (risk, opportunity), it might have a big impact on your business. So you should find a way to track and monitor events that could induce a risk (or opportunity).
Especially risks have a negative impact and should be monitored closely. A small risk at start can become a much larger risk later. When planning the strategic direction, companies always take into account the risk & opportunities (head- & tailwinds) that might occur and apply a percentage of occurrence to it. These risk & opportunities are monitored closely and regular updates are provided to make sure the company stays on track of the strategic direction and the impact of these risks & opportunities are handled in advance.
Laws & Regulations
One of the biggest impact could come from laws & regulations. These mandatory rules apply for all businesses, so if this new law impacts your business, it will also impact your competition. The advantage of these rules & regulations is it is that known when these will be applied and what the impact might be, so you are able to prepare upfront.
On the other hand, these rules & regulations might impact your business severely, Think of trade restrictions based on geopolitical reasons, additional documentation needed to import/ export (Brexit) that impact your margin and speed of doing business.
Large organisations will have lobbyists on their payroll to influence the makers of these laws and regulations. Otherwise be prepared and make sure you keep up to date with anything new coming your way.
Conclusion
There are many factors of influence that might threaten the strategic direction of your organisation. In all cases, setup a system of early warning signals to make sure you receive updates early. One other option is the creation of scenarios. Make sure you have all external factors that might influence your business mapped out and have a close watch on any signals that indicates a change.
Competition, social & economics, risks & opportunities and laws & regulations will be out there, always. And these will have an impact on your organisation. The earlier you are aware of these factors and the closer you monitor these, the easier it is to adjust, in time.
Our next blog will cover the topic IBP Maturity.
