Over the past 30 years, S&OP has generally advanced beyond the goals of balancing supply and demand. We are seeing that mature S&OP processes now support rolling forecasts, enterprise resource reallocation, and strategy execution. In this article, however, Niels Van Hove, principal consultant at Crimson & Co ANZ, argues that to keep employees informed, engaged, and focused on executing strategy, S&OP outcomes must be communicated properly. He calls for a variety of communication channels, both structured and informal.
Most companies have a business “strategy,” but many struggle to execute it. According to a study by Kaplan and Norton (2005), the fundamental disconnect between strategy formulation and implementation has resulted in implementation failure rates of 60 to 90 percent. Smith and Ward (2005) found that while 80 percent of executives express satisfaction with their business strategy, only 14 percent are satisfied with the execution of the strategy. The ultimate goal of S&OP is the generation of a plan to support an organisation’s efforts to deploy and execute its strategy. In our busy day-to-day schedules, it’s easy to forget that communication is a key feature of these efforts. But to support strategy, communication must be an integral part of the S&OP process.
In our fast-changing and volatile world, effective communication is a necessity for organizational success. In his groundbreaking work on leading organizational change, John Kotter identifies eight steps for successful change, including clear and frequent communication of the vision (Kotter, 1995).
A McKinsey report (2015) considers communication to be one of the top three impact factors on business transformations, resulting in a four- to eightfold greater transformation success rate. Information flow is considered the strongest contributor to good strategy execution (Neilson & colleagues, 2008), and there is statistical evidence that poor communication and misaligned information flow are directly correlated with poor strategy execution and decreased profit (Radomska, 2014).
I believe practitioners do recognize that communication is an important part of S&OP. In my annual online questionnaire, the S&OP Pulse Check, practitioners suggest that the main reason to implement S&OP is to “improve cross-functional communication,” and the main cultural change driven by S&OP is “improved understanding and communication between business functions” (Van Hove, 2015).
All this makes sense in a classical, operationally focused S&OP environment, one where demand, supply, and inventory are kept in balance, and different functions need to communicate and coordinate to fix issues. To fix an inventory problem, for one example, S&OP participants can agree that a sales promotion or a product introduction will be delayed while operations gears up in capacity and procurement looks for alternative sources.
To effectively support strategy execution, however, S&OP communication needs to do more than fix operational issues. As Kaplan and Norton (2005) argue, horizontal communication is not enough. Horizontal communication information flow across functions is often at the same hierarchy level, where it is useful to solve business issues and run processes within an existing context. But there is also a need for vertical communication to create alignment throughout the organisation in support of a strategy.