Irrespective of the industry you work in, I am sure all of you would have noticed a huge change in the way your business operates in the last decade. You may have seen competition from previously unforeseen competitors, your CIOs talking about new digital ways of doing business and the utter lack of ready talent in your teams to manage this new challenge.
I am sure most of us have seen or heard comments from our senior leadership such as:
- The financial reports do not provide actionable data.
- Finance is just being the scorekeeper and is not helping influence business outcome.
- Finance does not understand what’s happening out there in the market and has no business awareness.
- Finance is too slow and provides data that is stale by the time it reaches us.
Changing expectations for FP&A teams
FP&A teams are now expected to play a crucial role in every company’s digital transformation process as they act as gatekeepers for critical financial and operational information across the entire organization. This includes not just pure financial information but also data relating to sales, operations and supply chains, as well as real-time industry and market statistics.
However, what’s happening, in reality, is that finance as a function is not transforming itself at the same pace as the business, it is operating in. In many cases, we are held back by old practices and processes which have largely become irrelevant in the new age. In this article, I will try to illustrate by using a few analogies, the view of people outside of finance. My hope is that these analogies will give you some food for thought on how you can transform your own team from a reactive reporter to a proactive partner.
A view from the outside – Are we really adding value where it matters?
Let me try to illustrate how delayed or aggregated financial information looks useless to our internal customers by using a bowling analogy (adopted from Cost & Effect – Robert S. Kaplan & Robin Cooper).
Think of your department head as a bowler, who is throwing a ball at pins every minute. But we don’t let the bowler see how many pins he has knocked down with each throw immediately. At the month end, we close the books, calculate the exact number of pins knocked down during the month, compare this total with a standard and report the variance back to the bowler. If the total number is below the expected standard, we ask the bowler for an explanation and encourage him to do better, next period. You can imagine we cannot expect to build many world-class bowlers with this approach. We did not give timely feedback and also this feedback did not have qualitative and causal reasons to explain the performance.
Furthermore, monthly performance reports also tend to have extensive indirect cost and overhead allocations, so the managers are held accountable for performance of factors which are not controllable by them nor traceable to them, leading to frustration. Continuing the analogy of the bowling alley, think of a company having 35 alleys representing different departments. We keep detailed records of the performance in each alley over the month and then we report back the average to all the bowlers (say something like 8.27456). This number may be very accurate to the decimal but it is completely useless as far as the bowler is concerned. They do not get any feedback on how they can improve in their next toss. Ideally, they don’t want the numbers to be contaminated or influenced by the actions of others over whom they have no control. But this is how most of the finance internal reports provide information to the stakeholders.
Creating a dynamic team for more relevance to the business
I hope I have managed to show you the view from the side of the business and why they think. So, what can you do to be more proactive? I will explain to you a few basic things I implemented in our business where we were facing the same questions of relevance:
- Structure. We modified the structure of the finance team into 3 parts. The accounting work was outsourced off to an offshore subsidiary. Then we broke the FP&A teams into 2 groups. One, specialists, had domain expertise in areas like reporting, pricing, project management, taxes etc. and another was the supporting partner of business-facing teams
- Collaboration. We realized that for the new normal it is imperative that we partner our business teams more closely. So, we introduced Finance Business Partners who worked within business teams. They understood the business issues first hand and solved them by taking the help of the specialists’ layer depending on the need. We made sure to put in a process of job rotations to ensure enrichment of our people and to reduce chances of people getting too comfortable in one role and stagnating.
- Technology adoption. We introduced online dashboards for many areas instead of month-end updates. This meant that there was no need for the managers to wait for monthly reports for taking decisions. We also invested in scenario-based forecasting tools, tools for doing auto analysis on area such as AP, Sales, closing, financial analysis etc. All these were off the shelf products which we did not have to spend much on customization. We also introduced several self-service tools, which moved the onus of data capturing to the actual people instead of finance doing the work. In many areas, we introduced reporting by exception, and sunset regular reports.
- Emphasis on storytelling. Finally, we trained our FP&A guys to tell stories. I have always observed that the majority of the finance guys are shy and not natural public speakers. Hence, we started investing in developing our staff. Our focus was on some simple stuff like know your audience, anticipate questions in advance, don’t clutter your slides, don’t use accounting/finance jargons, always connect with corporate strategy, try to be factual and don’t present your conclusions but try to get the conclusion from your audience, to mention a few simple rules.
Things have become more unpredictable as we witnessed in 2020 with the pandemic. But remember the winners are the ones who find solutions to every problem. In these uncertainties, data-driven decision making is the only solution and FP&A are the only guys who can support this. Keep an open mind, embrace change and keep a business-oriented approach to our department. This is the only way we would be relevant and become critical partners to the business.