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4 April 2015

Planning and Forecasting

Tag(s): Marketing
 “If a man does not know what port he is steering for, then no wind is favourable to him.” Seneca
 “Everybody has got a Plan until they get punched in the mouth.” Mike Tyson
This is the time of year when many of us are involved in the process of Planning and forecasting. A new tax year is about to start and as the politicians keep making the tax code more complicated, it runs to about 6000 pages even if you exclude duplication and repealed legislation, so it becomes ever more complicated to Plan one’s affairs. A new fiscal year for many companies is often a chance to reorganise. When I was at Sony it was always used as a chance to reorganise. Every 1st April I would receive news from Tokyo of top management changes. In the General Election the Prime Minister likes to contrast his ‘long term economic Plan’ with the chaos of his competitors but then he Planned to eliminate the deficit by the end of this Parliament and it is still £90 billion.
 This is an extract from Chapter 6 of my book The Twenty Ps of Marketing about Planning and forecasting.


 An inevitable feature of any Plan is that it will contain a forecast. Another feature is that it is almost inevitable that this forecast will be wrong. None of us can tell the future with any accuracy.  As Winston Spencer Churchill said “I always avoid prophesying beforehand, because it is much better policy to prophesy after the event has already taken place.” The great baseball player, Yogi Berra, put it even more succinctly when he said “It’s tough to make predictions, especially about the future.”
 Here are a few examples of mankind’s ability to tell the future, particularly as it relates to innovation:

Everything that can be invented has been invented” Charles Duell, an official at the US patent office, 1899
The telephone has too many shortcomings to be seriously considered as a means of communication.” a memo at Western Union, 1878

“The cinema is little more than a fad. It’s just canned drama.” Charlie Chaplin, actor, producer, director and co-founder United Artists, 1916

“Flight by machines heavier than air is unpractical and insignificant, if not utterly impossible.” mathematician, Simon Newcomb, 1902

“The horse is here to stay, but the automobile is only a novelty, a fad.” The president of the Michigan Savings Bank advising Henry Ford’s lawyer not to invest in the Ford Motor Company, 1903

 “Television won’t last.” Mary Somerville, pioneer of radio, 1948

 “Nuclear powered vacuum cleaners will probably be a reality in 10 years.” Alex Lewt, president of vacuum cleaner firm Lewt Corporation, in the New York Times, 1955

 We can develop statistical models which can improve our rate of accuracy but it is important to start off with the knowledge that we will be wrong and then we can Plan to manage that process. Having said that I do believe that greater accuracy in forecasting is a source of competitive advantage. At Sony we had a very talented Market Research Manager who used all available commercial sources and then added his own interpretation to put together a remarkably accurate set of forecasts about the Market development.[i] We then used these as the basis of our Plans which we shared with our major customers. We invited them to give us their forward orders based on these Plans. However, their orders would of course be very inaccurate. It was one thing to forecast the size of the Market. It was quite another to forecast how many of a particular model would sell. Competitors might put more of their resources behind a particular model or indeed simply drop the Price to make one of our lines uncompetitive.

Contingency Plans

 Here again is the importance of Plan B. We needed a contingency Plan, a fund to bring into play when one of our Products was in trouble. Retailers work on much shorter Planning horizons. Mark Souhami, former deputy Chairman of Dixons Store Group, the largest retailer in the UK of consumer electronics, once told me that the Strategic Planning horizon of a retailer was about ten minutes. Our factories liked to operate on long range Plans with long lead times.  Our customers wanted to react to the weekend’s sales figures. John Clare, the Chief Executive of Dixons, had the sales figures for the week sent to his home on a Saturday night. I know because I’ve been a guest at a dinner party in his home on a Saturday evening when he would excuse himself for a while and go and study the figures. On Monday mornings he would review these with his buying and Marketing teams and calls would go out to suppliers for help with slow selling lines. I imagine all this process, short term as it was then, will have speeded up with faster computers and better electronic communications.

 In a fast changing environment with little certainty about the future the best approach is to constantly review your objectives and progress towards them. If the vision is clear there may be many ways to get there. A sports coach sets a Game Plan but will not stick rigidly to it if his side goes behind.  I joined Pillsbury UK in 1984 to run its Green’s of Brighton division as General Manager. The Pillsbury Corporation was then quoted on Wall St and had delivered thirteen consecutive years of quarterly growth in Earnings Per Share. It was financially driven with strong controls and demands made on its business units. Green’s was regarded as a cash cow and I was tasked with delivering a specific contribution figure. These targets were set by US management and UK managers’ job was to achieve them.

Green’s factory was in a mining town in South Yorkshire. We were the second largest employer after the National Coal Board whose employees went on a national strike that year. Those terrible industrial relations spilled over into our factory. Our budget was carefully calculated and allowed no room in negotiation with the trade union over the annual pay rise. My boss, the UK Managing Director and I delivered that message to the shop stewards who promptly recommended strike action to the work force. I got them back after nine days of negotiation which obviously cost more than some concession in the original round. Thus the inflexibility imposed on us by our American masters which we in turn attempted to impose on our work force led to a worse result. (I’m glad to say that before I left the company four years later relations had improved and we enjoyed a regular cricket match between management and staff.)

  In business I advocate rolling Plans and forecasts updated for every major change in outlook. This has to be carefully managed and may impact on the kind of remuneration scheme that an organisation adopts. But just as it is better to evaluate historic performance on a moving annual total (MAT) basis to appreciate trends so it is preferable to roll the forecast forward by updating it with every piece of major news. It is also better to plan for a range of scenarios. Three obvious positions might be:

Target: the position the company is aiming for.

Budget: the position the management is committing to.

Fallback: The minimum position to be achieved or cuts in cost and/or investment will have to be made.

 In summary, Planning is an essential part of the Marketing mix. But the Planning needs to be of a practical nature concentrating on setting SMART objectives with detailed Planning and good contingency Planning to back it up in the event of serious deviation from the original Plan.

Further Reading: I recommend Marketing Plans: How to prepare them: how to use them by Professor Malcolm McDonald. I had the great pleasure to work with Malcolm when I was at Pentland. I had been asked by the CEO to introduce Professionalism into the Marketing across the company. I introduced Malcolm and his colleagues at Cranfield University to help me with this and we started by introducing a proper Planning process into each business unit. Malcolm is one of those academics I appreciate as he was a practitioner first as Marketing Director of Canada Dry.

If you would like to read the whole book there is a link to the publisher on the home page of this website.

[i] This was Patrick Butler whom I last met when I was writing this book. He asked me when it was going to be published. Sadly he died in tragic circumstances before the book came out. He is fondly remembered.

Copyright David C Pearson 2015 All rights reserved

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