With business leaders placing increasing value on the strategic input of CFOs, it is clear this will have an impact on how financial planning and analysis (FP&A) evolves over the next few years, incorporating more areas of operational as well as strategic planning.
By focusing on execution in operations and strategy development, FP&A teams are strengthening and helping to transform their organisations. Even though many companies have invested in their FP&A functions over recent years, the truth is that in many organisations, FP&A still doesn’t have the horsepower it requires if it is to be a true strategic partner to senior leadership teams.
Over recent years, we have witnessed an increased frequency and magnitude of economic shocks such as supply chain disruptions, energy price increases and labour shortages to name a few. These have put pressure and increasing demands onto traditional FP&A teams which have worked more to quarterly and annual cycles than responding to real time impacts on the business. Also FP&A and finance teams are having to deal with an exponential increase in the amount of business and financial data required for forecasts, budgets and strategic plans.
Organisations that see the value in FP&A have used these trends and impacts as a driver to improve how they operate and support their business’s strategy. Key to this is adopting new technology which captures and processes more data faster than before. In reality, this amount of data was often not previously captured due to the limitations of systems, processing capabilities and team abilities. Many teams have adopted new technology to revolutionise the presentation of this data, making it easier to digest by a wider, non-finance audience.
All of this is enabling FP&A teams to embed themselves as trusted business partners to the executive leadership. Our 2022 CFO survey found that FP&A is the area most companies (49%) were likely to be hiring into over the next year. It will be incumbent on organisations to find ways to make this a reality; reconfiguring how decisions are made to ensure they are at the forefront of good FP&A feeding into strategy and risk management. Many FP&A teams have built increased pace and flexibility into their processes, enabling them to respond to changing economic or market conditions.
So many FP&A teams rely on legacy processes and systems such as Excel and PowerPoint, making it onerous to refresh the data and resulting in key stakeholders waiting for the next iteration to arrive. In contrast to this, FP&A teams of the future who have rebuilt their processes and reports, can communicate more frequently and with greater ease and reliability. FP&A teams have achieved this by engaging with the wider business to find ways to improve the flow of data and enable speedier reporting.
These new FP&A teams have looked to get data from other financial and non-financial sources to help drive critical business decision-making, some of which have relied historically on intuition. Working with their company’s IT function, they have built data warehouses containing financial and non-financial data as well as relevant data from other external sources. In this way, FP&A teams can provide coherent data to the key stakeholders more easily to enable them to make smarter decisions more quickly.
Interestingly, having led Kingfisher’s FP&A function, I remember working on a project using an early version of SAP S/4HANA which took information from a variety of sources including the Met Office for weather data so store managers could plan whether to promote barbeques and bedding plants or large umbrellas on a given weekend. This was all designed as a dashboard which company leaders could use during weekly meetings. Here, agreeing on the KPIs in advance was crucial to ensure that the technology and reports would be used.
Top FP&A teams have advanced their standing by identifying the key factors which will have an impact on the business and linking them to financial performance and strategic decision-making.
Businesses should define their KPIs, and reflect on what are the most critical business factors on a product, range or business unit level. This new approach to forecasting brings senior management and business unit leaders’ perspectives on business performance closer together, creating more meaningful discussions on future strategy. Moreover, this should all happen in a much shorter timeframe.
As well as steering senior leadership on strategic direction, next-generation FP&A teams also need to build the case for transformational strategic change. From a position of knowledge and understanding, FP&A teams can help the company to direct precious resources towards the company’s highest value activities. This is an evolution based on trust with boards relying on FP&A teams to manage the uncertainties which come from such transformation.
Companies looking to evolve and improve their FP&A functions should think of processes, technology and talent. Due to the constraints of budget, time and other priorities, it’s often not possible to change everything overnight, but in many cases making small changes can result in improved performance.
FP&A leaders, with the support of the CFO, should evaluate their existing processes and identify key performance drivers for the business. This may be an iterative course, rebuilding the planning processes linked to key decisions in a phased way.
Companies will need to invest in technology to deliver deeper and more meaningful insights. This is often linked to broader technological and organisational change in businesses with FP&A leaders working closely with the wider leadership to demonstrate the value of combining business process changes and new technologies. FP&A teams can be pioneers of democratising real-time data through dashboards which can be used by everyone from the CEO to the store manager, as in my Kingfisher example.
FP&A teams have been developing talent beyond their financial capabilities. As the role of FP&A moves to more of a strategic business partner, new areas of data analytics and storytelling become more important.
Currently many FP&A teams are treading water – there is a lot to do managing existing processes and expectations. The danger here is that they stay as basic providers of information. To develop, we should emphasise the ‘A’ in FP&A, giving teams more responsibility to manage data more effectively through the adoption of new technology, faster identification and sharing of insights. As a result, they will become indispensable thought partners to the business.