What does it mean for a company to be agile? Agility in a company means flexibility in its operations, a mindset open to change, and the capability to take action when advantageous, especially under changing circumstances.
Expanding on AFP’s research, FP&A Survey: Measuring Agility in FP&A, AFP’s recent webinar, “The Traits of Agile Companies,” explored this topic of agility. The expert panel included Frank Chou, FPAC, CTP, Senior Manager, Corporate FP&A, EVgo; Jenn Zinschlag, Partner, Artemis Executive Search; and Mario Vasquez, FPAC, Director of Finance, E.W. Scripps and Company.
Agility and resilience are essentially two sides of the same coin. While agility is positively framed around opportunities, resilience is its flip side — the response to negative stimuli, such as the coronavirus pandemic, supply chain disruptions and instability. “It has the same impact as agility, and the same thought process,” said Bryan Lapidus, FPAC, AFP’s Director, FP&A Practice.
The thought process surrounding agility is rooted in information technology (IT). This is where it became the normal order of business to break free from rigid methodologies, and where solutions were created through an evolutionary process of collaboration between self-organizing, cross-functional teams utilizing the appropriate practices for their context. It was the desire to become agile that brought finance closer to the business.
AFP’s Guide to Financial Modeling and Model Supervision offers 12 principles that align the ‘Agile Manifesto,’ with modeling goals and best FP&A practices.
Why does agility matter?
Agile companies outperform others. They’re resilient and take advantage of new opportunities, and they are less brittle when adversity inevitably arises.
McKinsey & Company researched the performance of over 1,100 publicly traded companies during the Great Recession. These companies covered a diverse range of industries and regions with revenues of over $1 billion, and what they found was this: Companies that scored as more agile and resilient not only performed better in the depths of the recession, they actually expanded their lead over others year after year.
From AFP’s own research on agility in FP&A, those defined as agile leaders — the top 20% of survey respondents — were more likely to have better outcomes and follow best practices. They were able to reforecast 50% faster than core respondents, and they were more likely to use multiple scenarios. And they went a step further: They were twice as likely to have a playbook already crafted in response to those scenarios.
The design and mindset of an agile company
Start with a focus on understanding your culture in general, the challenges you face, and the pain points of your leadership and staff by asking: What problem are we trying to fix? And what do we want our company to look like?
One of the biggest is related mindset — and this is true whether it's the FP&A department or the culture and the company as a whole — you have to go from managing and directing to coaching and empowering. Three powerful practices to get you started are: showing through your actions that you trust your employees and team members to get the job done, practicing better team engagement, and encouraging critical thinking by asking leading questions.
Empowering your people is beneficial for your entire company. The result is that your team feels valued, and when they feel valued, they’re more creative and effective.
Ready to take the next step in becoming a more agile finance function? Register for the complimentary, virtual event, AFP FP&A Series: Getting Agile Right for Finance, exclusively sponsored by think-cell.
Are we working too hard?
Giving more than 100% doesn’t equate with agility and resilience. When your people are working at or above capacity, there is no room to jump on opportunities, handle breakages or explore curiosities that become insights.
Consistently running on overload can lead to burnout, which is now included in the International Classification of Diseases by the World Health Organization. It is characterized by three “dimensions” (World Health Organization, 2019):
- Feelings of energy depletion or exhaustion.
- Increased mental distance from one’s job, or feelings of negativism or cynicism related to one's job.
- Reduced professional efficacy.
While burnout is felt on an individual level, it functions on a holistic level. Looking at the functionality and culture of FP&A, it’s not in the nature of finance to say no, especially when it comes to requests from the CFO. “We want to have a voice at the table and be a contributor,” said Chou. “Because of that, we'll go above and beyond.”
What happens when FP&A goes above and beyond? “We forget the ‘A’ in FP&A,” said Chou. If you're constantly churning through activity, then you don't have the time to step back, analyze, think, digest results, and then come up with a comprehensive narrative that can easily be understood and impactful to the business.
How technology adds to agility
Agile leaders held the largest lead over core respondents in the area of technology and data, specifically, having the right tools to do the job and having access to trusted data.
Not all companies need a system or complex process. In fact, most finance professionals still use spreadsheets on a daily basis, with Excel leading the pack. However, if you want to become agile in your use of technology, the goal is to automate as much of that process as possible.
For FP&A, the speed at which you’re able to reforecast is dependent on the data source. “If it’s going to take you a long time to get it into a usable format, then it’s just as bad as not having access to it,” said Vasquez. And in order to do it faster, you need systems.
Business monitoring and finance operations
It is expected that finance has the pulse, not only of the internal operations of the business, but of key external factors, whether that’s market or industry related, or pertaining to your customers and suppliers. FP&A needs to listen to the signals from inside and outside the company in order to prepare reactions and help the company move with speed.
Scenario planning is usually done with internal foresight in mind. How will we see the impacts to cash if we make this proactive decision to close a plant or facility, or shift production? It’s the unforeseen changes that occur externally that trigger the what-ifs. What are you doing, proactively versus reactively, to drive these scenarios? Are you using scenarios to plan ahead, or are you using them as a response to external stimuli?
It all ties together
Being agile requires action and commitment to all the working parts of the formula, from the capability to take action to the empowerment of your staff, and the cultural acceptance that allow your people the freedom to examine and question the workings of the company. It means being able to ask the challenging questions and implement the technology that gives you the time and order to do it all. And finally, building it all into more efficient and resilient processes. Zinschlag says that you can’t just do one; to be an outperformer, to be agile, you have to do them all.