The Importance of Aligning IT With the Business for Modeling and Scenario Planning

by Simon Tucker
October 16, 2008

Too often, companies either pay little attention to, or completely leave out, modeling the business based on various business scenarios and their potential impact. In addition, business managers often don’t communicate their actual business requirements with CIOs and IT teams. However, this is one of the most important processes a business can perform to remain agile and competitive. CIOs and IT teams play a huge role in enabling the organization to model the business using a common set of connected tools.

Once the strategy has been formulated and agreed upon at the executive level, the “model” needs to be tested in a simulated environment to see if it is realistic and achievable. For example, it’s great to say you want to increase your market share by 25 percent next year. But if constraints such as your raw material supply, skilled labor, and distribution channel can’t cope with that type of rapid expansion, you won’t achieve the target. Modeling should answer those questions for you.

And I know what you’re thinking: Isn’t it obvious you would realize at the strategy stage that a goal was unachievable? Ask any operations leader if they’ve experienced a crazy target mandate from corporate and I think you’ll find the situation is fairly common.

That also leads us to the subject of alignment. You need alignment across corporate and operational functions to ensure modeling and business scenarios are effective. That alignment comes from technology and standard processes on top of a robust IT platform. Operations, with their vast knowledge and experience in real-world scenarios and with their finger on the pulse of the business from an execution standpoint, are the best complement to corporate when it comes to modeling and validating plans.

Modeling also involves getting to the true drivers of the business. These drivers are what truly drive, or have a material effect on, the performance of the business. Although they differ across industries, examples include cost of goods sold, revenue, and qualified leads. These business drivers need to be communicated to the entire organization. Using many different tools, IT needs to supply that same, shared data to the many people who will contribute or consume it.

Once you have modeled the strategy and aligned it with operational activities, the business needs to test (model) scenarios it feels likely won’t occur, but could occur given certain conditions. For example, a distribution company that’s busy modeling for the coming year would need to take into account proposed existing client activity for the coming year, look at the effect on new client acquisitions, and calculate the effect of costs on the business, such as fuel, maintenance, insurance, etc.

With fuel costs skyrocketing, it’s hard to predict what the coming year will bring, and fluctuations vary year over year, but fluctuations and projected increases should be built into the model.