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By Liping Qi, Head of FP&A at Kuiper (Part of Amazon)
When I interview FP&A candidates, they often ask me the secret to success in the finance role. My answer has always been, "To be a successful finance partner, you have to understand the business you are in". Regardless of the position, one has to know the business well to be a value-adding finance leader. It is not just what the company does but really understanding how the business behaviours translate into numbers and what these numbers tell us about the business's state and future path. In this article, I explain why Business Partnering is crucial based on one of my previous experiences.
Many finance professionals focus solely on financial outcomes without understanding the broader business implications. I remember my first meeting with a business operation leader as I joined a delivery business. I asked him what the biggest challenge was then. He commented,
"I worry our costs to build the delivery stations are increasing, and we need to reduce costs."
From the surface, this is an obvious problem. To drive the efficiency of an operation, we can't build more expensive delivery stations. The numbers the team showed me that the cost per station was getting higher yearly. I decided to ask my team the following questions to understand the whole picture behind the cost increase better:
The team couldn't immediately answer these questions. That is why I started thinking about the reasons that could account for higher prices.
Each of the above factors could impact the cost per delivery station. And if any of the above might have been answered positively, the cost of the station was expected to go up. However, it was not supposed to be a bad thing. I figured out that we needed to look at the overall dynamic of the business operations. As we expand the station's size, we may be driving up the efficiency of its operation by delivering more units out of the station.
Consequently, the cost per unit could be less due to the scalability advantage. And as the business moves closer to the city-centric areas and delivers within a shorter time frame, the same size station may cover more units as we gain population density and, again, efficiency out of the same size station.
Even if we considered building a green field delivery station, though it might have become more expensive than our 'usual' ones at the time, it would offer optimisation of the process to deliver more units per square foot. Therefore, when we looked at the cost of building a station going up, it was not necessarily a problem for the business.
My team and I started to understand the business on the ground. Everything began with visiting multiple delivery stations to understand how they operate and measure their efficiency. We talked to real estate and construction teams to grasp the fundamental principles of the dynamics of the market situation. Then, we discussed with the demand forecasting teams to understand how they forecast where the need for a delivery station would be. Finally, we gathered the relevant business operation data and knowledge to help us perform the analysis.
Indeed, the team's analysis showed that the station cost was increasing. However, we also discovered that a new KPI we developed, dedicated to measuring the cost per unit delivered, was going down considering the one-time buildout and ongoing upkeeping of the station. That was how the continuous improvement of the productivity of the station buildout was justified.
At the same time, the operation leader I talked to initially was looking at one piece of the puzzle. It was the stations' buildout. However, there were other aspects to consider, for instance, the ongoing costs of station upkeeping. To illustrate it, let us look at the green field station. In this case, we did spend more initially, but the ongoing rent cost for the station was significantly lowered. When we understood these factors and their impact on the overall operation, it was revealed that an increase in the cost per station could ultimately lead to increased efficiency and cost savings in the long term.
To achieve this level of understanding, building strong partnerships with operational teams and gaining insight into their day-to-day activities is essential. By doing so, finance professionals can better understand the business and the implications of financial decisions. I realised that by working together, different teams could gather valuable data and insights to perform more informed analyses and influence financial decisions to further create the company's value.
We ought to see their impact on the whole business to ensure our decisions and directions optimise the company's value. It is unnecessary to rely only on the financial outcome of one piece of the puzzle, as understanding the entire picture is vital. Finance professionals can't simply look at the numbers as they appear since we need to understand their full implication to the business. Also, we need to link the financials we are looking at to the other pieces of the puzzle, to understand how they interact. If my team sits in front of the computer and takes in what the numbers tell us, we will come to a wrong conclusion. The correct answer often is not math based, as it is business acumen based.
Without understanding the overall business picture, we could provide the wrong input to our operation leaders and lead the business to a value reduction direction or, even worse, a destructive path. To be a successful finance leader, learn about your business from day one. The earlier you know about your business and can translate the knowledge into financial numbers, the sooner you become a valuable team member.
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