An elusive goal for most finance organizations is for the chief financial officer (CFO) and financial planning and analysis (FP&A) practitioner to function as stewards of value creation and strategic business partners. Many organizations have spent years transforming their FP&A capabilities to become more valued business partners, but results have been slow or not met expectations.

In a recent AFP webinar, “FP&A is Falling Short of CFO Expectations,” Jim Kaitz, president and CEO of AFP, moderated a discussion on how FP&A teams can contribute to a company’s business strategy or value-added analysis. Joining Kaitz for the discussion were Bain & Company experts: Michael Heric, senior partner; Steve Beam, expert partner; and Anup Juneja, principal. They discussed their experience of working with CFOs to highlight five challenges companies encounter when trying to transform their FP&A and how to overcome them.

1) Lack of alignment among business leaders.

When there is lack of alignment or buy-in among business leaders, the questions that need to be asked include: Does FP&A know how the business makes money? Where does the cash come from? Where are the risks and opportunities across that process, regardless of supply chain or commercial activity? Are they aligned with the business in terms of where their value is created? “Everything needs to be aligned, including the value of a business’ brand, cash and income across the entire gamut of the activity or function that FP&A is supporting,” said Beam.

Steps to overcome this challenge:

• Understand where the business makes money and how that will change. There is a movement or a natural tendency to be comfortable in thinking about historical activities and reporting actuals. Instead, Beam suggests pivoting and leveraging historical information into a more forward-looking risks and opportunities perspective of how, where, and when the business can make money or create value.
• Align with business leaders on the sources of value creation for the future, then work backward to redesign FP&A around them.
• Co-pilot FP&A transformation with the business. “FP&A is in a unique position to either lead or become a hurdle in the overall finance transformation,” said Beam. “With that, FP&A is being elevated into a leadership role, whether it is finance transformation or other transformations in terms of understanding risks, benefits and opportunities.”

2) Sticking with the traditional approach to FP&A.

Traditional FP&A tends to rely on a group of generalists to carry out a broad scope of responsibilities, but the bar for FP&A expertise continues to rise. FP&A needs to evolve to a more forward-looking decision support function.

Steps to overcome this challenge:

• FP&A organizations should mirror the business. Many businesses are evolving as they expand into new customer segments, new product, new geographies, new business models, and new channels.It’s important that FP&A keeps pace and ensure that the Finance business partners and the central FP&A organization align with the business organization structure.
• Have dedicated FP&A roles. FP&A organizations may need to evolve from a predominantly generalist model to more specialists to build the required expertise the business needs.
• Move to centers of excellence. With deeper specialization now at a premium, CFOs increasingly turn to new organizational models such as centers of excellence, which could be organized around reporting or specific types of analytics.
• Ensure dedicated resources and focus equally on the traditional side of the business and the new-growth/innovation side of the business.

3) Persistent gaps in skills.

FP&A is ultimately an apprenticeship job.  Research shows that the skills needed for successful FP&A practitioners are evolving.  FP&A teams with traditional finance or accounting backgrounds may not always have a deep understanding of the business domain.  Many individuals in a high level of FP&A have had very prescriptive career coaching or career mapping, and have developed skill sets around process, supply chain, and technical and digital aspects of the financial tool sets.

Steps to overcome this challenge:

• Great people in FP&A are developed, not hired. Finance leaders need to invest in their teams to develop their FP&A skill sets and this requires a comprehensive, multi-year program to provide FP&A teams with the right training.
• Build new and deeper specializations. “Some of the challenges that we're hearing from many of our business unit leaders and clients is that finance does not speak some individuals’ language,” said Beam. “So how can FP&A be bilingual and understand both the financial acumen and the business acumen.”
• Focus more on business acumen than financial acumen. It’s important that FP&A practitioners spend enough time out in the business developing a deep understanding of what drives business performance and how Finance can help business leaders make better decisions.
• Rotate resources from businesses into FP&A and vice versa. “This keeps the perspective fresh and focused on what matters most to the business, as well as ensures that cash and income risk and opportunities are constantly at the forefront of the FP&A function,” said Beam.

4) Inability to adopt or scale up new ways of working.

The inability to adopt or scale up new ways of working is seen in cases where FP&A teams try to be too disruptive without acknowledging business demands and requirements. They try to drive too many changes in isolation without actively aligning with the business and end customer requirements.

“Our experience suggests that FP&A teams must pick a few areas where innovation will have the largest impact and effect on the business, and once agreed on, take a ‘test and learn’ approach using agile methods,” said Juneja. “Creating a constant feedback loop with business stakeholders helps quickly scale up the most promising bets.”

Steps to overcome this challenge:

• Focus on progress and change versus perfection.
• Pick fewer areas to make bigger bets.
• Focus on areas in the business that are being disrupted to reinvent FP&A practices.
• Be agile — test, learn and scale quickly.

5) Inadequate technology and data.

As volatility grows, businesses request more frequent forecasts from finance, requiring access to clean data and the right tools. According to Juneja, the lack of tools is not the primary pain point for finance departments. Instead, the bigger problem is the unintegrated tools, too many tools, or poor user experience. “In terms of technology, we have to acknowledge that the incumbent finance technology players like your ERP, EPM and BI vendors are also constantly innovating. It's not a static market,” said Juneja.

Steps to overcome this challenge:

• Address root causes of why existing technology is failing before investing in new. “It is important that when trying to innovate, you do not create a more fragmented IT environment unless there are clear gaps in existing technology,” said Juneja. “Organizations should be more pragmatic about making new IT investments.”
• Align on what you want to measure and analyze first.
• New is not always better.
• Follow a phased approach.
• Focus on data structure and governance first. “Finance functions along with business owners need to start planning for the type of insights they want to capture, and then start working on their data collection strategy to reap the benefits later,” said Juneja.

Moving forward: What makes a great FP&A?

• Be a strategic thinker.
• Master the art of storytelling.
• Be joined at the hip with the business.
• Have curiosity and an open-minded approach.

Miss the webinar? Watch the recording here. Don’t miss another webinar around this topic as Bain & Company’s Steve Beam joins Anders Liu-Lindberg and Bryan Lapidus, FPAC, to discuss recommendations on how FP&A can become a better business partner. Register for the May 18th webinar here.