Jim Kaitz, President and CEO, AFP
“To contribute more value, finance teams need to define a broader set of both financial and non-financial metrics, and then standardize on these across the enterprise to present a comprehensive and consistent picture to stakeholders.” —Lynne Schneider and Tom Willman, The Hackett Group
, Recalibrating Finance to Deliver Greater Value
Steve Player, North America program director for SAP’s Beyond Budgeting Round Table, said in a recent blog post: “While FP&A … typically stand[s] for Financial Planning and Analysis, many CFOs would prefer it to stand for ‘Future Profits Assured.’”
I spend much time meeting with finance professionals from companies of all types and sizes all over the world. From financial institutions in the UK to appliance manufacturers in Sweden—these companies bear a common goal: profitable growth. Further, half the companies in the Hackett Group survey (quoted above) cite revenue growth as their top financial objective in 2014. How can the FP&A function help? I see four major steps as critical.
1. Have a firm grasp on key metrics, data and analytics, and forecasting and modeling. That means developing budgets and forecasts with other business units within the organization, which in turn requires a sense of trust that they are all headed in the same direction to drive real growth. Any modeling forecasts and analytics you’re using must be flexible enough to deal with the turbulence and uncertainty that has become just another part of today’s economic reality.
A major airline I recently visited conducted an in-depth analysis of their fuel costs and worked with the business units to reduce small amounts of costs on each flight, which resulted in millions of dollars in savings.. And that’s just one piece of data.
2. Know which data is important—more is not necessarily better. Don’t get totally subsumed and lost in the information or you risk losing sight of the forest for the trees. Many times, CEOs and their board members get excited by having tremendous amounts of data, which creates the desire for even more. The best FP&A people can distill an 80-page report down to three or four critical indicators—the key metrics that will drive the business.
3. Speed up the budgeting process exponentially. Many companies I have met with typically spend six to nine months doing budgets. In today’s economy, that’s glacially slow. Taking that long doesn’t give FP&A enough time to focus on strategy. One major company I met with has reduced its budget cycle down to 65 days, and is working to reduce it even further, a remarkable achievement for a large company.
4. Bring your findings to the attention of all the other business units compellingly and convincingly. Great finance departments demystify the numbers for the other business units. They’re able to articulate the data and distill it down to the key drivers and targets that will be meaningful to senior decision makers. This requires the discipline to drive the message down to the business units while driving it up to the CEO, the CFO and the board. Everyone in the organization needs to understand why these findings are important and can create profitable growth (or, alternatively, cannot create profitable growth). Use a universal set of terms to explain and gauge performance.
According to Hackett, the finance departments that are doing it right “are strongly aligned with the business.” They are twice as involved in strategic planning and are 76% more likely to be perceived in the C-Suite as a major contributor to business value.
In successful companies, finance is leading a broad strategic agenda. Simply put, today’s finance function must be about more than just finance for companies to achieve their strategic goals. Moving beyond transactional work to analysis that generates real value will help drive these strategies.
Being a critical profit driver for your business has as much to do with having technical finance skills as relationship-building skills, communications and other core competencies. Today, you have unprecedented opportunities to meet other finance professionals globally through peer networking, clubs, roundtables, etc. These opportunities are the foundation to connect, learn best practices from each other and raise the visibility of this function over time. That will only enhance your ability to drive long-term profitable growth, improve strategy and initiate other key successes within your organization.