Can Financial Planning and Analysis (FP&A) groups keep up with the rapid and profound changes in many organizations?
For example, imagine what is shaking up the media industry. Consumption patterns have changed as the share of traditional television shrinks, digital streaming increases, and content creators can more easily self-publish and distribute their shows. Media company FP&A teams therefore need to provide insight into the shift in revenue and profits from traditional television to digital streaming models. more ways to monetize content; and about the investment required to set up direct-to-consumer models.
Similarly, the software sector has shifted from a traditional license and maintenance model to a subscription model. This is where FP&A teams are asked to assess the impact on growth and profitability and reallocate operating costs and investments.
The COVID-19 pandemic and subsequent lockdowns accelerated some of these trends, compressing the shifts in digital behavior worth several years into months, and adding cost and liquidity pressures to many industries.
Executives and CFOs want their FP&A teams to become value managers. FP&A should spend less time explaining the numbers and more time working with the company to manage them. A finance manager told us: “I need an operational thought partner and not someone who just scores.”
CFOs have recognized the need to transform FP&A for some time. Despite years of hard work redesigning processes and investing in new technology and data, many have not achieved the results expected. In our experience, you face five challenges in trying to transform the FP&A function.
1. Lack of alignment or lack of buy-in.
Successful transformations require a strong finance-executive partnership from the start, rather than acting independently and reporting results to the company. That’s because the company has to make the trade-offs between future sources of value and the path and time to get there.
2. Sticking to the traditional approach of the FP&A organization.
Traditional FP&A organizations typically rely on a group of generalists for a wide range of responsibilities. However, the bar for expertise in FP&A continues to rise as companies step in and out of customer segments, products, countries, business models and channels. With deeper specialization, organizational design can help, and CFOs are increasingly turning to new organizational models for FP&A, particularly hub-and-spoke configurations and centers of excellence.
One example is Nielsen Global Media. Over the years, Nielsen moved from a highly decentralized to a more centralized organization. In doing so, Nielsen created a central FP&A analytics hub that owned the data to create a single source of truth, and performed cross-functional analytics that were used by the entire organization. The teams in the company were smaller and focused more on interacting with the company than performing the analysis. As a result, Nielsen was able to save costs and also improve the company’s level of service – by simplifying forecasting, cutting the budgeting process in half, and minimizing the time it takes to plan operations and trading teams.
3. Persistent gaps in critical skills.
FP&A teams that consist only of people with a traditional finance or accounting background often lack a deep understanding of the business area. A partial division of staff time between FP&A and other areas also limits the ability of finance professionals to build competence in FP&A.
To build the skills required, it is important to first devote a group of finance professionals to the FP&A work, rather than splitting them between FP&A and accounting or other transactional work. The best finance managers look beyond traditional skills for people with a background in business, data science, or analytics. They also invest in training and rotation programs.
4. Inability to introduce or expand new ways of working.
This danger manifests itself in a failure to apply innovative practices or a tendency to place a large number of small bets with low results. The main tool is to select a few areas where you want to double investment, where innovation will have the greatest positive impact on business goals.
As part of a major cost-cutting campaign, a large telecommunications company took the opportunity for the FP&A role to reinvent itself. FP&A installed better tracking of performance management and initiatives, which improved accountability. A budgeting tool has been developed that improves KPI (Key Performance Indicator) analysis and general reporting. A cloud-based initiative tracking tool ensured savings initiatives stayed on track.
5. Insufficient technology and data.
As economic volatility increases, the company requests more and more financial forecasts. However, the FP&A teams making the forecast spend half their time collecting and preparing the data. That’s what a recent survey by the Association for Financial Professionals found – an unsustainable situation.
Waiting for a major core system upgrade will take many years and have questionable ROIs. Instead, it pays to take a step-by-step approach with a portfolio of existing and new technology solutions. Cleaning up your data and fixing other data problems is a good place to start. After that, FP&A can fall back on more advanced tools and the use of the cloud.
As companies commit to changing their FP&A role, it’s important to choose the right focus and pace.
Microsoft’s finance organization has been transforming since the early 2000s, improving control over data and standards across the company. Finance has cultivated a culture that continuously offers its internal customers innovative technology solutions, especially in the FP&A area. Examples include a company administration portal, self-service analysis on a global KPI lake and machine learning in forecasting processes.
Many of these innovations were developed and adopted quickly – for example, 8-10 weeks for machine learning in the sales forecast and 14 weeks for the global KPI lake adopted by business users. As a result, Microsoft Finance has reduced the time it takes to validate and compile data by 20% and has significantly improved the quality of support provided to the company.
As companies commit to changing their FP&A role, it’s important to choose the right focus and pace. You should coordinate with the executives on the sources of future value creation and then work backwards to reshape FP&A around them. And they should carefully choose where to invest. This increases the likelihood that FP&A will shift its role from the Scorekeeper to the real business partner.
Michael Heric is a partner, Steve Beam is a seasoned partner and Anup Juneja is a senior manager at Bain & Company. They are based in New York, Atlanta and London.