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Planting the Seeds for Integration

It’s clear from our interactions with managers and executives that integration is a positive state of being. In managerial practice, programs such as sales and operations planning (S&OP) have been implemented at hundreds of companies in an effort to achieve this integration, yet many of those companies would not describe themselves as truly integrated. The question remains, under what conditions can a company achieve this worthy goal, especially in a complex, potentially global enterprise? We propose that three conditions exist that provide the best environment for business integration to flourish: organizational structure, process, and culture. To illustrate our examples, we use S&OP as the specific context for presenting our ideas about the ideal conditions for fostering organizational integration. However, we would expect the same conditions to exist in many other integration-related settings as well.

Organizational Structure

By organizational structure, we refer to the reporting relationships that exist in a firm. In the internal supply chain of a company, organizational structure can encourage integration if a process is organizationally aligned with other functions of the enterprise. The most valuable integration opportunities tend to come when a function that is “upstream facing” integration with others that are “downstream facing,” that is, when operations or logistics integrate with sales or marketing. However, these types of integration often present the biggest challenges. Such is the case of S&OP, which is often perceived, at least by sales and marketing people, as “supply chain planning” when it should be perceived as integrated business planning. By organizationally aligning the S&OP process with sales or marketing, such misperception can be addressed. Similar considerations can be made in the case of the organizational “home” of the forecasting, or demand planning, function in a firm. Many firms house demand planning in the supply chain group, for reasons such as “we don’t trust sales and marketing to prepare accurate forecasts.” Organizationally aligning demand planning in the sales or marketing group, where demand actually occurs, can potentially contribute to integration.

One way that companies often use organizational structure in an attempt to drive integration is through a matrix organizational structure. For example, an S&OP process owner could find him or herself in a matrixed role, reporting to both a sales leader and a supply chain leader simultaneously. Or, in a variation on that theme, that individual could be “solid line” to the sales leader and “dotted line” to a supply chain leader. Although simple to execute, such a strategy often creates the illusion of integration, rather than true integration. Although such matrix approaches can encourage individuals to be cognizant of the needs of multiple functions, it can also lead to significant role conflict or role ambiguity in the individuals involved. Without attention to the other two drivers of integration—integrative processes and a culture that facilitates integration—such organizational structure strategies are unlikely to lead to true integration.

Process

Processes are formal, disciplined mechanisms that bring together relevant pieces of information, from different points of view, delivered by different people, in a regularly scheduled forum, to help the organization make decisions that will help it achieve its goals. Such processes are referred to as S&OP, SIOP, IBP, DSI, or other labels. A good example is the well-documented integrated business planning process that is normally associated with the consulting firm Oliver Wight. From a high-level view, it typically consists of five separate steps: Product and Portfolio Planning, Demand Planning, Supply Planning, Financial Reconciliation, and Executive Review. Each step is often documented with detailed flowcharts that describe the sequence of events that must occur, the analyses that need to be completed, and the timing of those analyses. Such a process is often repeated on a regular, monthly drumbeat. Information is brought together from multiple functions in the firm, including sales, marketing, supply chain, finance, and senior management. Customers and suppliers are often represented in the different stages of the process. Companies frequently spend large amounts of time and effort to construct and document these processes, and they are often elegantly designed and comprehensive. Unfortunately, it is our contention that these processes, by themselves, often fail to achieve true integration. Both organizational structure and integrative processes are necessary but not sufficient to the goal of true integration. The final mechanism, culture, must be addressed.

Culture

Defining culture is difficult. John Mello has published articles in this and other outlets in which he has commented upon the effect that culture has on effective forecasting and business integration.21 Merriam-Webster defines culture as “a way of thinking, behaving, or working that exists in a place or organization (such as a business).” An organization’s culture can be observed in the norms of behavior and attitude that are present in a firm. How people think; how they interact with others; what they find important; how hard they work; how they dress—all these and countless others define an organization’s culture.

Some organizational cultures are supportive of integration, and some are resistant. Those that are resistant to integration are characterized by each functional group having its own unique culture, and the people are distrustful, or even disdainful, of other functional groups’ cultures. In a business integration context, this can be manifested in the following types of statements:

  • “I don’t believe any of the forecasts coming out of sales. They’re way too optimistic.”
  • “All the supply chain people care about is minimizing inventory. They don’t care about serving our customers.”
  • “Finance is living in dreamland. We’ll never make that Annual Operating Plan number.”

On the other hand, a culture that promotes integration is one where people are pursuing common goals, regardless of the functional area in which they work. So what can a company do to create that integration-friendly culture? Or, what can a company do to transform an integration-unfriendly culture into one where integration can thrive? It is our assertion that there are two approaches to addressing these problems, both of which must be addressed: top-down and bottom-up.

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