One of the great things about being part of Financial Planning & Analysis (FP&A) is that we have lots of data to analyse. On the other hand, lots of data can also be difficult to present meaningfully, and we often miss the opportunity to present it most helpfully. For example, have you ever been told that someone in a high position needs information? While your initial response might be to be helpful and provide the information, that may not be the most beneficial action as a strategic advisor. Many people feel that providing the requested information validates their role's importance – they are a gatekeeper of information. 

However, if we do not understand why the information is being requested, we cannot put it in the context of strategy. This article discusses how to provide information in a way that facilitates strategic thinking, using the five common skills for building a winning FP&A team.

Why Are We Struggling with Strategy?

Many leaders struggle with strategy. It's important for us to recognise and help with this struggle instead of compounding it by providing more data without purpose or context. There is a lot of confusion about what a "business strategy" is.

According to a Harvard Business School article, a business strategy is about how people throughout the organisation should make decisions and allocate resources in order to accomplish key objectives. Suppose we provide data to make decisions and allocate resources better. Still, if we do not know why we are providing it, we can't present the information in the best context. For example, many of our business leaders want to know what they can afford to spend without providing the business rationale in the first place. We get a frequent question:

How much of a P and 'L's profit can be spent on people, travel and entertainment, office leases, and so on?

The reality is that spending profit in itself is the wrong mental model. In the context of strategy, we should allocate resources to accomplish key objectives and ultimately provide a return on investment above our cost of capital. We need to understand if there is an impact on marginal revenue and marginal cost. The question "what we can afford" only tells us how to hit a target average margin. It does not even consider if we are accomplishing a strategic allocation of resources to achieve an objective – like increasing market share, developing a brand, or increasing profitability.
 

Using the 5 FP&A Team Roles to Facilitate Strategy

In fairness, business strategy is complicated. If it were easy, everyone would do it. When we do not know what to do, copying the tried and true business playbook is easier than being creative. However, real business growth and profits result from creativity and innovation, as well as from following the company playbook precisely. That is how we outperform – when we can execute superior ideas with critical mass.

In my experience, creative people discover and realise their vision allowing innovation to happen over time but not instantly. The role of the financial advisor is to spend time with leaders, accompanying them along the growth journey to understand how vision and mission evolve.

The flip side to creativity is the need to deliver profits and hit our numbers right now. As the business grows, we need to balance re-investment in the company, rewarding our employees with career paths, as well as continue hitting our numbers. How do we help strike a balance between these competing priorities? Here's my road map.

Step 1: It Starts with Trust - Be the Guide, not the Hero

I spent much time understanding the macro numbers and trends in financial data, organisational structure, team and individual incentives. This is what I call doing my homework and studying for the test.

This core understanding allows me to frame the leader's requests for data into the larger needs of the organisation and how we can fit requests into growing the business. It enables me to ask good questions and challenge requests thoughtfully. How do we motivate our teams to increase market share or productivity? It is never about me making the decisions; it is about being a guide to facilitate my leaders and help them make better, more informed decisions.

For example, once there was a request to increase someone's compensation with the statement – it was because the person was "criminally" underpaid. Questioning why we would believe the person was underpaid by benchmarking against what other people in similar roles make and examining how to balance fixed and incentive compensation enabled me to understand the context in which the request was made and provide relevant guidance. This is the influencer role, and it starts with building trust.

Step 2: Use Narrative and Story to Define Strategy and Support It with Real Numbers

When outsiders come into our group, they frequently ask how we do things. The reality is when you work for a growing company, many decisions are made quickly, reactively addressing the problem of the day. Quick decisions are needed for survival, and progress is often achieved over perfection. We do many things striving to make ourselves 10% better as opposed to re-inventing the business model.

The newcomer to the group frequently wants to make changes to make their life easier instead of really understanding where we have competitive advantages and what we are doing to scale these to critical mass. We need to craft a story of a journey - where we started, where we are at, and where we want to be. Our role as financial advisors is to add numbers to the story, showing if we are indeed making incremental progress and being candid if our plans are not progressing or experiencing financial setbacks. This all results in the business plan being a story and journey supported by real numbers that create credibility. This is the storyteller's role, and it always helps to make the business leader the hero or protagonist of the story!

Step 3: Use the Scientific Method to Try New Things

Good ideas do not always work. There are also times when there may be disagreement on whether an idea is good or bad. What we can do with small sample sizes is try anything. Then, we can measure it to see if it works. It's called the scientific method. The scientific method is used in all sciences, including chemistry, physics, geology, and psychology, so why not incorporate it into business? The scientific method has five basic steps plus one feedback step:

1. Make an observation.
2. Ask a question.
3. Form a hypothesis or testable explanation.
4. Make a prediction based on the hypothesis.
5. Test the prediction.
6. Iterate: use the results to make new hypotheses or predictions.

The great thing about being the financial analyst in this process is that we can incorporate the results in the overall narrative and business plan in Step 2 above. When things work, we can try to scale them. We can tweak or abandon them altogether when they do not work. This is the data scientist's role.

Step 4: Use Choice Architecture to Clarify Vision

While we know we need to make decisions to drive growth, the number of decisions we need to make a day may appear endless. I receive countless emails every day asking for a response. If the answer is open-ended, like "What do you want?" or "How can we help you?", it takes a lot of mental energy to respond. As an advisor, we can make life easier by making it a multiple-choice test. We need to anticipate a range of responses, typically with three potential solutions. The potential answers should be easy and actionable. After it, we can start to brainstorm how any of the potential answers fit into the following steps:

• Step 1 (building trust – let's give answers that show we've done our homework),
• Step 2 (the answers can fit into our business plan),
• and Step 3 (answers can be tested as part of the scientific method).

If the leader does not like any of our answers, we also learn more about them, which helps us craft better answers next time. Choice architecture facilitates our own learning as well. This is the architect's role.

Step 5: Love What You Do and Praise Others

We all have good days and bad days. Success, balancing today's financial results with the vision to innovate into the future is hard. When championing business growth, it is easy to lose sight of what is important and why you are doing what you are doing. The support needed to survive the daily setbacks, scepticism, and uncertainty does not come from things. It comes from people. Take the time to catch others doing things right and praise them. Love what you do, and life will love you back. Help others love their life, and it has a multiplying effect on your team. At the end of the day, winning FP&A teams result from people working together, knowing and enjoying their roles in the team to accomplish a common mission. This is the loving analyst role.

Conclusion

What distinguishes a great financial analyst from an average financial analyst isn't the amount of data or tools they have. Great analysts can build trust with their leaders, craft stories with numbers supporting the business plan, test new initiatives for effectiveness and facilitate decisions using choice architecture. Doing all this with a smile, loving what you do, and supporting others make one a great financial analyst.