As the global economy continues to warm up but an air of caution still lingers, so the spotlight shines ever more brightly on in-house finance planning and analysis teams. With uncertain times comes the need for additional insight and data-driven analysis to navigate through potentially choppy waters.
Unquestionably, there has been a wide level of investment into and a visible growth of FP&A teams across the corporate world with even small businesses recognising the relative return on investment. Most corporate FP&A Directors, particularly in the UK, now enjoy a level of recognition and authority rarely seen previously. The continued growth and elevation of FP&A as a core finance practice points towards the question of evolution. Have these re-born or, in some cases, fledgling finance planning and analysis teams also reached a pinnacle in their practice or is evolution still under way? If so, how far away are we from FP&A eminence?
Whilst Europe continues to build and develop its corporate finance planning and analysis teams, it is worth noting that Fortune 500 companies in the U.S have been relative trailblazers in their adoption of FP&A as a vital business tool. Indeed, finance planning and analysis is incredibly ingrained across large U.S corporates with many firms having had a proliferation of FP&A professionals both at group, regional and divisional level for over a decade. A notable example of how an organisation has firmly embedded FP&A into its work practice is General Electric (GE). In many GE businesses, the CFO will lead a finance function effectively split into three camps, one technical and reporting focused, another focusing on FP&A led, business performance management and a centralised shared service function for transactional accounting.
It is then unsurprising that many Group CFOs across the U.S have a background in FP&A as it provides a clear route to the top. FP&A as a platform to reach the CFO post is not quite as obvious in Europe, partly due to the relative immaturity of the function itself in many organisations. In order for pan-European CFOs and FP&A Directors to truly evolve their functions, it may well be wise to investigate the thought-leading practice of their U.S. peers.
Vision for Value
The reality of FP&A in the UK corporate landscape and particularly amongst the SME community is that there is a wide degree of variety in approach from company to company. As a consequence, evolution and real progress has occurred in some organisations but for others, the journey is still fresh. A significant number of larger corporates have taken the initiative following the downturn to optimise their finance planning and analysis functions as CFOs tired of endless spreadsheets and sought to bring in FP&A leaders who could deliver the insight behind the metrics. To this end, there has been a definitive change in the profile of the corporate FP&A leader with those who were happy to just be high-level analysts succumbing to a newer breed of strategically aware and commercially savvy finance professionals.
Whilst Group CFOs in the more sizeable companies enjoyed the benefits of optimisation, for Finance Directors in SMEs, the move to create a new Head of FP&A was often a venture into the relatively unknown. Though large corporates may have more sophisticated systems and tools at the disposal of their FP&A Directors, many SMEs can still boast highly effective FP&A leaders who are intrinsic contributors to business strategy and decision making. One could go even further and suggest it is not the scale of an organisation’s resources that determines the strength of an FP&A function but rather the CFO’s vision, understanding and faith in the role that FP&A plays within the business. This support is crucial if a function is to perform at its strategic optimum rather than as a centre for more data.
The question of FP&A evolution principally centres on two key points; the dovetailing into strategy and organisational structure. In order to embrace strategically impactive functions, CFOs need to first fully determine their FP&A value proposition.
Finance planning and analysis teams engage in a number of activities subject to resource, capability and the CFO’s plans. Whilst more routine tasks include budgeting, forecasting and capital planning, a more progressive team will contribute significantly in the areas of strategic planning, M&A and risk management. With these expanding duties, CFOs and FP&A Directors have to shape the structure of their teams accordingly with particular attention paid to the skill-set and profile of each team member. This perceptible shift in approach can be best evidenced by the movement of more transactional FP&A services such as cost/expense accounting into a centralised shared service function. The background and expertise of these FP&A professionals will differ when contrasted against both the budgeting/forecasting specialists who will likely be trained management accountants and the strategic FP&A professionals who typically have diverse experiences ranging from business analytics to M&A.
Conceivably, a mature finance planning and analysis department will have separate teams/individuals with varying competencies led by an FP&A Director who operates much more as a strategic advisor to the Board. A robust structure in this mould enhances the capability of FP&A leaders and their teams to contribute further and more incisively into the strategic planning process. Indeed, the magnitude of input from FP&A into strategic decisions at all levels within an organisation is the hallmark of an advanced operation. As investment into and the benefits of a robust FP&A platform are realised then, through defined structures, responsibilities and talent management, FP&A will continue to gain more prominence in a company’s decision-making process. The future of FP&A could well see these sophisticated functions become an industry standard and FP&A leaders becoming the natural heir apparent to the CFO.