Why Organizations Need to Involve FP&As in Business Strategy Development
Even though financial analysts work with numbers, there’s so much more to the FP&A function than counting dollars and cents. Unlike accountants who frequently operate from a transactional and rules mindset, financial planning and analysis (FP&A) professionals have a mindset that is deeply analytical and strategic. That means FP&As can and should play a critical role in framing business strategy for an organization.
Strategic planning is focused on envisioning the longer-term future of an organization, exploring how the organization may achieve those objectives, determining what resources and activities will be required and how they will be deployed. By involving the analytical and strategic minds of FP&As in this process, leadership can connect the objectives of resource identification and deployment with greater collaboration between department heads. Tasks such as evaluating capital investments, facility expansion, managing cash flow, and evaluating acquisitions all play a role in strategic planning and can be most effectively addressed by FP&A
To successfully integrate FP&As into strategic planning, organizations must first understand the different ways FP&As add value to an overall strategy framework. Then, to fully realize the advantages identified, leadership will need to provide FP&As opportunities to integrate across and within various departments.
The Role FP&A Plays in Forming a Business Strategy
Here are specific ways FP&As can create value for organizations by framing and driving strategy throughout an organization.
1. Building and monitoring the strategic plan
In most organizations, the head of finance or CFO will be directly involved in the strategic planning process. Ideally, the larger FP&A leadership will be involved in the company’s strategic planning from the outset. However, because many businesses are only starting to differentiate between accounting and FP&A in more recent years, accounting and finance groups may be seen as one and the same and left out of the collaboration.
Nonetheless, even if an FP&A function is in its infancy, it’s rarely too late to get strategic financial professionals involved in strategic planning. Because they are closest to financial intelligence, they’re likely to know about or observe operational connections that may not be visible to other team members outside of FP&A. Although not applicable in all companies, encouraging involvement “the sooner, the better” often rings true here. In addition to being a part of the company’s initial strategic planning cycle, members of the FP&A team should be included in regular assessments and updates throughout the year and ideally at least quarterly.
When developing or adapting a business strategy, the head of finance or CFO should work closely with the FP&A leadership team and other functional heads to quantify department goals and develop segmented and macro plans to achieve them. By bringing FP&A into strategic discussions, organizational leaders can have access to and receive more insight from data intelligence to make informed business decisions that directly affect their outcomes.
While initial strategic planning involves the upper echelon of leadership, throughout the year, FP&A should work with more than just the leadership team. They should be connected to other influencers within business groups who can help them understand the groups' critical activities and drivers of financial performance.
Often, in partnership, FP&A can assist in identifying drivers that departmental heads may not even recognize within their own jurisdiction. The FP&A team should work closely with department heads, not just to identify drivers, but to develop risk management strategies and opportunities to better align the business unit with the overall strategic direction.
2. Analytics
Thanks to the availability of digitized data, the FP&A function is becoming increasingly data-centric. While working in big data can be cumbersome and overwhelming for many companies, greater access to data is a good thing when the information is clean and workable.
Data helps drive business decisions more confidently, by using a baseline of objectivity versus conjecture to forecast. FP&A can help departmental leaders develop vouchable assumptions around the drivers that impact their business segments. Certainly, what occurred in the past may have limited bearing on what shapes the figure; however, having access to historical data points and revealing hidden relationships can offer insight into what might mitigate risk and achieve the desired results within the greater strategic plan.
3. Identifying new sources of revenue
Unlike accounting, which relies much on the reporting and accuracy of historical information and data, FP&A primarily focuses on the future. It’s far more subjective and speculative despite the reliance on data and analytics to unveil insights. That means FP&As are uniquely positioned to identify new growth opportunities, whether through existing channels or new ones. FP&A can segment and forecast revenue and share these forecasts with other business groups, such as marketing, procurement, operations, human resources, and customer service. Such awareness within these other groups gives them the ability to visualize where the business is headed and how the groups can be aligned.
This cross-departmental collaboration requires FP&As to have a certain level of institutional business and industry knowledge. It’s why many larger organizations have specialized roles for FP&As, positioning them as partners to or within sales, marketing, operations, human resources, and elsewhere. Creating specialized roles within the FP&A team allows FP&As to drill down into specifics for a particular business area, industry, or function.
How Financial Leadership Development Programs Can Train FP&As to Align with Business Strategy
FP&As won’t become experts within a particular industry, organization, or business area overnight. And they won’t become experts in a few short years. It takes time to fully grasp a business’s operations and throughout understand the environment it operates in.
That’s why many companies are putting high-potential FP&As into financial leadership development programs (FLDPs). While some companies have recently identified their value, others have been committed to this concept for decades. FLDPs have been known for grooming top talent in their most formative years and positioning them for success upon completion of the program.
Some of the more well-known and prestigious financial leadership development programs are at the following companies:
General Electric
Cigna
Johnson & Johnson
Verizon
Siemens
Raytheon
Similar programs now exist and are being built out at dozens of blue-chip companies.
One example of an FLDP that can support FP&As as they support business strategy is a multi-year, multi-function rotational program. Rotational programs operate as they sound – they rotate FP&As around different business areas. Usually, FP&As are assigned different roles for a certain period, ranging from a few months to a few years, before moving on to the next function.
Some companies limit the time FP&As spend in rotational positions to a few years, treating rotational programs almost as a long-term training period and onboarding for new hires. In some ways, it’s similar to an internship but far longer and more involved with clearer objectives. While an internship tends to be designed to give interns a flavor for the company and tee them up for full-time work, FLDPs are designed to position new hires for the next chapters of their careers.
Other companies provide even deeper and longer programs, lasting up to six years, with the intention of deploying graduates into senior Director positions. High-potential FP&As can benefit from getting specialized training in different business areas so that upon completion of the program, they’re better equipped to serve as internal advisors and business partners.
From the human resources (HR) perspective, rather than HR spending so much time, effort, energy, and investment on hiring the right skilled workers, corporate FLDPs can be successful by hiring exceptional professionals with tremendous capabilities and potential and then developing them within the program framework.
These are all reasons why many companies, especially larger organizations, are starting to treat the rotation as a full-time, long-term strategy for high-potential employees.
Benefits of Rotational Programs for FP&As
Here are some benefits organizations can realize when implementing rotational programs into the FP&A role.
1. Added value across functions
FP&As are already skilled in technical work, conducting work in data, analytics, forecasting, budgeting, and more. This is true whether they come in at an entry- or higher-level role.
They are not, however, experts in the specific business areas of the organization they are entering into. By rotating around and through different departments, FP&As can add value to particular departments and the overall organization.
Having knowledge across functional groups gives FP&As the ground-level operational knowledge they need to align these functional groups with a macro-level strategic and financial business strategy.
2. Increased retention rates
Clearly, one of the concerns many companies have about financial leadership development programs is their cost. Leadership may shy away from rotational programs because they believe they are too expensive, especially given the long runway and the lack of formal commitments to remain at the company upon completion. However, an unforeseen benefit is that the upfront cost is paid off over time by improving retention rates for FP&As.
Increasingly, the role of FP&A is being filled by Millennials, who are eager to learn across functions as part of their professional development. Thus, FP&As may be more inclined to stay with a company that gives them access to multiple departments.
An example of this may be observed at one of the FLDPs aforementioned. One recently trained leadership group has seen a year-over-year retention rate of around 95% since implementing rotational programs for their FP&A team. Even a slight decrease in this rate can be extremely costly and lead to an erosion of morale, cohesiveness, and knowledge retention.
3. Flexible workforce without outsourcing
After spending several years rotating through an FLDP, FP&As are equipped to emerge from the program and transition to other niches as the company requires. In one Fortune 500 FLDP program, leadership identifies functional needs across the organization while concurrently identifying talent within the program. Positioning and repositioning talent across this very large corporation is highly fluid and intentional.
In addition, having diversified specialization among FP&As allows the FP&A team to function more like project-based consultants than fixed-hour employees. This reduces wasted time and ensures that FP&As are engaged in meaningful projects that align with their capabilities while benefiting the company and driving its business strategy forward.
Get FP&A Involved in Shaping Your Business Strategy
Involving FP&A in business strategy can help organizations make more informed decisions that lead to better outcomes. FP&A brings specialized knowledge about the company and environment and specialized skills to execute projects more effectively. This allows them to serve as internal consultants, advisors, and partners.
Many business leaders recognize the benefits of involving FP&A in their business strategy but are unsure how or where to start.
If that sounds familiar, please reach out. I help organizations develop FP&A teams that align with their business strategies and advance them effectively. Book a consultation to get started.