Repeated research has shown that over two-thirds of organizations are failing to extract any value from their Sales and Operations Planning (S&OP) process*. Despite the mountain of research on how to develop a mature S&OP process, and the millions of dollars spent, 68% of organizations are barely coping with balancing supply and demand.
In response to these cross-functional complications, experts have long-touted, time-tested methodologies (S&OP, IBP, S&OE, etc.) as cure-alls for the dysfunctions that plague many organizations’ business planning processes and results. But, do these methodologies truly address the core fallacy of business planning? We think not.
When business planning efforts disappoint, those same experts believe weak executive support, a lack of governance with clear KPIs, and limited (and/or low quality) integrated data are the core reasons. While those elements are crucial to the success of any business planning methodology, there seems to be a more prevalent underlying culprit at play – akrasia.
Initially investigated and debated by Socrates and Aristotle in the 4th and 5th century, akrasia is one of the most widespread and persistent barriers to getting things done. Defined as “weak-willed” and “acting against one’s better judgement,” akrasia is a state of mind exemplified when an individual or group exhibits a lapse in reason and a weakness in putting reasoned conclusions into practice. For instance, after making a firm commitment to eat healthy and exercise daily, people find themselves spending an inordinate amount of time eating unhealthy food in front of the television.
In the business environment, akrasia is commonly seen within what behavioral economics call “hyperbolic discounting.” Hyperbolic discounting refers to the tendency of the human brain to value immediate rewards more highly than future rewards. For example, and in correlation to business planning, when organizations develop plans, they are making plans for their future selves, inherently evaluating long-term benefits. However, when the time comes to actually make a decision, organizations no longer think of their future selves. Instead, organizations think about their present self, preferring instant gratification, not long-term payoff.
In this psychological battle, the time has come for companies to begin investing in “symbiotic technology.” “Symbiotic technology” is the combination of AR/VR technology and AI/chatbots to reinforce good behavior by collaborating with humans during the completion of tasks and decision-making. The focus of “symbiotic technology” is not solely about increasing productivity, but about developing an improved way of thinking with technology. By becoming accustomed to leveraging technology for filtration and analysis of large amounts of data, employees can sustain a track record of successful forecasting and decision-making. In the end, this will create a more data driven decision-making culture, strengthening organizations’ ability to combat akrasia.
Envision a collaborative planning environment where models, simulations, and scenario analyses don’t follow a long cycle with single-variable tweaks analyzed in a black box system. The current approach to modeling is to evaluate select variables in order to arrive at a target figure, be it inventory levels or profitability. The concept of “network flows” are merely sets of Origin-Destination pairs that exist as columns and rows on a spreadsheet. The next-gen planning environment will pair simulation with augmented-reality worlds, coupled with real-time data and AI/chatbots, to simulate the outcome of their planning decisions.
For example, imagine you are part of the planning team at a blow mold manufacturing company. You are leading the latest integrated business planning meeting with executives and plant leadership across the country. The task is to run through the three-to-six-month demand plan and evaluate production’s ability to fulfill these requests, then arrive at a consensus plan. Team members are provided Oculus headsets and the conference rooms are outfitted with Alexa virtual assistants.
You are placed in an environment that projects a map of your full supply chain footprint, including plants, shipping lanes, supply facilities, and distribution nodes. The meeting commences as follows:
- The master planner calls out to Alexa to project a time-phased view of demand over the last three months and you see the locations and lanes light up in varying intensities of green and red, depending on the strain of the network.
- An executive calls out to the virtual assistant, inquiring why shipments were delayed during the month of August. She is reminded that river levels were low, causing delays on barge shipments, and requiring increased truck shipments to cover the delay (highlighting the lanes used to cover and noting in the top-right corner the freight cost variance in doing so).
- Throughout the review, questions are asked regarding the driving factors of network interruptions, providing both external and internal information to the attendees that inform root-cause analysis, where decisions are made on supplier/transportation contracts.
- The master planner then calls out for Alexa to project another time-phased view of the latest demand plan. The logistics director notes that political instability may affect the availability of crude oil, which is used to power half the plants in the region. We see the network change to red as half of plant production is curtailed.
- The lead production director indicates that some facilities can pick up the slack if provided with the right level of direction. As such, the planner pulls up virtual views of the plants supplied by natural gas, which have now been modified to cover the demand allocations from the other facilities. Three machines and two inventory areas are highlighted red in anticipation of potential production problems and available inventory space running at such high rates.
- Executives request immediate notification from the virtual assistant if oil indices hit certain inventory/price levels, in which case this backup plan will be kicked off.
The meeting ends, everyone having understood the variance drivers of the last few months, expected outcomes of the next few, and a backup plan for a significant risk-adjusted scenario. The plant managers are training their crews and making contract labor arrangements for the potential oil-curtailment risk. Spillover inventory space is being cleaned and the forklifts undergo some light maintenance to put them in working order. Transportation planners are moving assets into place and ensuring contracts don’t kick up large price increases as demand shifts. On the “normal” side of the plan, RPA bots have issued POs to suppliers for the standard orders as well as a new RFP for the reissuance of a yearly transportation contract.
As things unfold over the next couple of months, you now feel more confident (and empathic) about what is going to happen.
Through this enhanced augmented reality, and not another numerical visualization, employees will be able to play out their predictions, emotionally experiencing the outcomes of their decisions, whether good or bad. Through this more personable approach, organizations can finally combat akrasia’s hyperbolic discounting issue, forcing employees to feel a “real” sense of accountability when making decisions about the organization’s present self when compared to its future self. In addition, this new way of planning will enable organizations to conceive a deeper understanding of their customers, suppliers, and industry overall.
A new era is upon us
Gone are the days of enforcing business plans through simple governance strategies and incentive tactics. A new style of business planning is on the horizon, and quickly approaching. Driven by the increasing proclivity to technology, these real world-rooted representations/simulations will transform executive decisions from what is often seen as ivory tower theories to tactical improvements and practical understanding, incorporating high degrees of probabilistic success. Through immersive scenario modeling, organizations can improve their planning and forecasting, bringing to life opportunities for cost reductions, creation of new partnerships, and capitalization of new revenue sources.
It’s time for organizations to address the issue of akrasia within their teams. As the core fallacy of business planning, organizations need to strategically think about investing in areas that will combat akrasia and its hyperbolic discounting conundrum. Harmonizing business planning processes with data aggregation functionality, human behavior, culture transformations, technological advancements, and the plethora of other impeding variants is not a small feat. However, after all is said and done, when organizations help themselves by investing in ways to help their employees help themselves, everyone’s present and future self wins.
*Gartner Research’s Five-Stage Sales and Operations Planning Maturity Report