The 1+2+1 Dimensions of FP&A
If businesses could solve the billion-dollar problem of: “we need to get the right information, in the right form, to the right people, at the right time, so that they can make the right decisions with a right degree of confidence and the right degree of precision” – think about the relief financial and non-financial leaders would feel. Solving this one simple statement is the greatest objective of most organizations I encounter. Why is it so difficult to address?
By the time many businesses implement what they SHOULD be doing, they become aware of something new they COULD be doing. The cycle perpetuates itself and business leaders find themselves playing catch-up and thinking they need to be doing more. It creates a constant feeling of being behind their peers and never feeling like they’re ahead of the ball. One of the key reasons for this always-frazzled feeling is the inefficient flow of communication, information, and decision-making. A second key reason is not analyzing incremental returns with incremental investment (or, collectively, incremental ROI).
Organizations are large and complex. They always have countless processes and work-streams being managed daily and at all times. These companies are also made of up people with different backgrounds, skills, education, workstyles, personalities, and motivations. For large organizations with hundreds or thousands of employees, the complexity is arguably immeasurable. This contributes to frustration, inefficiency, and lots of wasted time and money. When it gets bad enough it leads to unacceptable levels of organizational risk, erosion of profitability, and human resource issues like disengagement, stress, burnout and turnover.
Despite the inherent complexity, financial leadership doesn’t have to be.
The 1+2+1 Dimensions of FP&A
The four dimensions of FP&A are:
Process
People and Culture, and
Systems
While each is vital in its own way, everything revolves around process. Companies hire people to build and perform processes; companies implement systems to perform processes; companies form culture to ensure the people, systems, and process stick and endure.
The most prevalent issue I usually see is a lack of uniformity in the way business processes are conducted and how reporting is managed. Many in company leadership view technology as a savior to deeper issues, but then the choices of software dictates the processes, people, and culture needed to manage it. My recommendation is the opposite – first define the processes, protocols, and standards — then use those to shop for the best software solution.
When it comes to people, another issue I frequently see is senior people progressing through the ranks because of tenure or technical ability. Advancement is not necessarily because of great management or leadership skill. While a small handful of leaders demonstrate exceptional oversight abilities, they’re often in the minority. It’s vital that the people rising through the ranks are the most capable, not just because they’re smart, but because they’re best suited to lead. Technical acumen and leadership ability are two completely different skill-sets. You’re lucky to find someone with both.
A third issue is the inconsistency of educational and professional backgrounds among key professionals. In a manufacturing company, strategic finance and FP&A serve very specific roles that may be entirely different from the same function in a financial services company. On top of those differences, no university (at least that I’m aware of) has an educational curriculum or fellowships designed to deliver the needs of the strategic finance and FP&A functions. If this is the case, how can companies expect to address inefficiencies in the function if: a) universities aren’t educating students for the profession; b) experienced hires are all coming from different prior backgrounds; c) much FP&A work is ad-hoc analysis; and d) there is little consistency in communication and process? Coincidentally, just this past week, I spoke with an FP&A colleague who shared that San Jose State University is in the initial throes of developing the first FP&A university degree.
How Some Companies Are Getting it Right
The few organizations I’ve encountered that address these issues successfully are those that have robust financial leadership development programs (commonly referred to FLDPs). FLDPs are often intended to be rotational in nature and blend professional development and training. Every six (6) to twenty-four (24) months, professionals move into a new role within the company and are mentored before entering into and at the outset of starting in that role. After going through the program for several years, the participants who have gone through the FLDP program have honed their skills, networked substantially, understand the financial and operational congruence between functions, and have been positioned for leadership – not because of their tenure but because they’re the real deal and possess the qualities a company should expect from their financial leadership.
These exceptional people bring a more well-rounded and holistic viewpoint back to the FP&A function. They are insightful to be able to challenge and create new process, recommend new technology, and possess enhanced leadership skills to lead teams and drive the culture.