One of the most significant changes business-planning consultant Steve Player says he's seen is manufacturers moving toward rolling financial forecasts. Traditionally, companies forecast to the end of the year, or "the wall," as Player calls it. The problem with this approach is that it's based on a set of assumptions, and as manufacturers found out last year, most of their expectations were wrong, says Player, founder and managing partner of The Player Group.
"If you look at 2008, just track the prices of a barrel of oil," Player says. "It started in January around $100 a barrel, by June of 2008 it climbed to $143 a barrel, and by November of that same year it plunged down into the high 30s. That's the volatility manufacturers had to try to produce in, and the economy they tried to operate in. So it begs the question: What type of prediction system, what type of locked-in annual budget can you lock into to help you manage? And what people realized is -- there isn't. So people in 2009 started throwing budgets out the window."
Steve Player, founder and managing partner, The Player Group
For instance, if a company's sales force reaches its year-end growth goal of 10%, but market growth exceeds 50%, the company has dramatically shortchanged itself, Player says. "That means we had a huge erosion of market share because we didn't keep up with the industry, yet we paid everyone maximum bonuses because that's what we said we ought to do," he explains.