Why Should We Have To Re-plan?
By Jayne C. Eastman, Managing Director

Many large and otherwise sophisticated companies are doing "re-plans" of their annual plans – every year. Of course, this is "re-planning" the plan that was just  deployed six months or so ago, and not finalized until nine months ago. So within  a year, companies are thinking and then re-thinking brand and portfolio objectives and strategies.

Sure, occasionally tremendous fluctuations of outside factors – that could not have been anticipated – can be the cause of the re-plan. But these are extraordinary events. For example, after the flight disruptions caused by the Icelandic volcano eruption and the recent cabin crew strike, there is good reason for British Airways to re-plan. But for most companies, changes of such magnitude are rare, and the need for a re-plan should be just as infrequent.

The only logical conclusion is that most major re-plans of the sort I am speaking of here demonstrate that there is something very, very wrong with the way we plan to begin with.

I don't need to detail here the huge costs to companies stemming from bad planning, from wastes of marketing dollars, to the inevitable financial chaos as companies rebalance portfolios, to the time that could have been spent developing innovations and executing with excellence – spent instead calculating causals and justifying poor results. The point is to do something about it.

We are proposing three principles that can not only improve planning, but also lead directly to more informed investment decisions across brands and portfolios.

1.  Understand how much of your volume and revenue results are driven by controllable versus uncontrollable factors.

By controllables, we mean factors such as marketing spending, product quality and benefit delivery, advertising effectiveness, pricing in-store presence (including assortment, shelving and trade promotion), and the like.  Uncontrollables are factors such as competitive activity, general economic conditions and factors specific to particular businesses, such as the rate of housing starts, incidence of certain diseases or conditions, or the weather.  Defining these factors – what they are and exactly how much they count – should be quantitative and precise, and is the job of granular, due-to analyses.

It is absolutely critical at this point to make the distinction between factors that are truly uncontrollable and those which are simply out of control. For example, we can analytically determine the amount of volume we lose to competition or gain from advertising. Those simple numbers are, however, often only a reflection of the relative power of what we, the marketers have, or haven't done. Have we spent to optimal levels in advertising?  Is the advertising strategy right and the execution persuasive? Are we losing to other brands because we are not offering the consumer a compelling value; that is, an appropriate benefit/price relationship?

The temptation that must be avoided during the planning (and, for that matter, the re-planning) periods is to rely on incomplete information and the justification of a number rather than an objective determination of why the number is what it is, and therefore what can be done to change it.

2.  Demand that marketing plans demonstrate the ability to minimally maintain and ideally improve the relationship between controllables and uncontrollables. 

The central question in a marketing plan should always be how can we maximize the impact of the controllables and attack the uncontrollables?  Answering that question requires us to first examine each factor both individually and then also in combination with all the other factors. This latter point is important. Few factors operate entirely independently, yet we frequently use independent data points concerning them and therefore effectively act as though they are independent. For example, if we can re-frame our product, identifying a new source of volume and so improve our advertising effectiveness, what impact will that also have on consumers' understanding of our price/value delivery and on our ability to challenge competition?

This is where the rubber meets the road if we truly want to affect the predictability and reliability of our strategic and operating plans.  Unfortunately, this is where there is frequently a break-down in the planning process between what we want to happen and what is likely to happen. This is where plans become top-down plans jiggered to meet pre-determined financial goals instead of plans built up from a reliable, analytic assessment of consumer response.

And it's unnecessary. We have the analytic tools to simulate the likely results of a plan's ability to change consumer behavior and identify the volumetric and revenue impact for each factor and for the plan in total. We can then ascertain the controllable versus uncontrollable proportions. If followed, this process can additionally isolate the sensitivity of each factor to the changes we are planning (that is, how we intend to improve the relationship between the controllables and the uncontrollables). Thus, we should also be able to produce a risk assessment for each brand and each portfolio.

3.  Be hard-nosed in assessing the investment in brands or portfolios which are tipped to uncontrollables and which have not shown the ability to alter that relationship.

Too often, marketing investment plans are built on what was spent before or what was done before. Individual parts of a brand or a portfolio are reviewed in isolation, separate from the rest of the portfolio. In fact, however, if we have developed granular due-to's and simulated plans with a real and comprehensive analysis of the underlying consumer dynamics, then we can make fact-based choices across all the brand and portfolio investment opportunities using the same criteria. Further, the risk assessments that are part of this process enable us to balance the portfolio plan not only in terms of forecasted returns, but also in terms of risk.

A brand that continuously has a disproportionate amount of its results dependent on uncontrollables is not a rational investment choice; these are brands that should be de-prioritized and ultimately eliminated.

Philips' decision to exit the television business in the U.S. while directing their investment resources towards profitable. growing, wellness-focused brands such as Avent and Sonicare is an example of shifting a portfolio away from businesses driven by uncontrollables.  This has allowed Philips to free themselves from the dramatic, economy-driven swings of the television business to focus on the high-growth businesses with more predictability.  Continuing to invest in brands that are heavily dependent on uncontrollables is tantamount to playing the lottery with your financial returns.

In summary, the need for constant re-plans is indicative of a badly broken planning process. The time and resources needlessly expended in re-plans should be re-directed to developing the information and supporting the tools to create more reliable, predictive plans.

Management should insist that these plans identify the controllables versus the uncontrollables, including the specific reasons that each factor impacts results the way it does. Plans should be evaluated in terms of their ability to create a favorable relationship between the controllable and the uncontrollable factors.  Lastly, management must use the analyses of this relationship and the associated risk assessments to make investment decisions across the company.  The benefits are both better plans and improved results, as resources are focused against the parts of the portfolio where you control your fate.