By Hyder Hasan, Global Finance Director at PureCircle
The concept of business partnering is more than two decades old and till now employees, at all levels, have not fully understood the fundamental point of Business Partnering roles. Even the companies which consider themselves ahead of the curve on implementing business partnering and have produced tons of reading material & presentations to make business partnering more effective have only thought of the functional and operational elements of business partnering role. At the end of the day, our business partners are the ultimate judge of the quality of finance business partnering and just a confidential feedback will help to understand the variation in expectations and delivery.
Usually, Finance personnel are assigned Business Partnering roles with Marketing, Sales and Supply Chain functions. The nature of Finance people, from their education to their job, is very process, system, guideline, principals, ordinances and standards driven, while their business partners rarely have this expertise, as they carry a very different skill set.
The core point which most of the finance people miss out in a Finance Business Partnering assignment is to take off their FINANCE HAT and wear their BUSINESS PARTNER’S HAT. In a Finance Business Partnering assignment finance people should not consider themselves as part of the Finance department, but part of their business partner’s department. Finance people should take their business partner’s agenda, as their own agenda and their business partner’s targets as their own targets. Using their financial skills, training and development, they should support their business partner to meet their agenda & targets. The only care, Finance person needs to have is, whenever their business partner goes off the track of financial discipline, they should politely bring them back on track. Business partners would certainly have the tendency to go off their budgets, execute contracts without timely or proper documentation, do non-strategic business activities, etc. Yes, whenever they do any act which could trigger an audit point, certainly, it is Finance business partner’s responsibility to help their business partner understand the consequences and drive governance in that area. It really helps when business partners are trained by finance to understand and follow finance disciplines.
On the other hand, a significant number of finance people carry an enormous tendency to kill unconventional business plans, creativity and ambitions of their business partners. Mind you, all of these are very dear to our business partners. Business Partners are always looking for new innovations, breakthrough technologies and unconventional products and whenever business partners come with a business plan of their creative work, their finance business partner is the first person who is unable to digest their business partner’s efforts. The key here is always to come up with ideas how to make it happen, rather than giving reasons of why their business plan cannot materialize.
The next important point is connectivity and communication with business partners. As soon as, finance business partnering role is assigned to an individual, the first advice I give, is to be seated along their business partners. For some reason, finance people like to sit within finance department and tries to find all the reasons not to sit with their business partners. This results in the lack of connectivity, communication and more importantly, a personal rapport with the business partner are never developed. Due to this, finance person neither understands the ways of working, personality and behaviors of their business partners nor they are part of their team buildings, off the corridor chat and in some cases, departmental meetings. Here, the advice is to involve in business activities just as your business partner does, as an example finance business partner of marketing should get involved in advertising campaigns, meet consumers and understand marketing innovations, finance business partner of sales, should do customer and trade visits, similarly finance business partner of supply chain should do production factory visits and understand product and manufacturing processes in detail.
The missing link in finance business partnering is very personal and individual based. It starts with finance person becoming part of their business partner’s department, sitting with them on a daily basis and developing a personal a rapport, official understanding and it reaches to the level, where finance owns their business partner’s agenda as their own and works with them to make it happen, while following financial disciplines. This way of business partnering will transform finance managers into business managers, which will later become their differentiation factor from rest of the finance community at large and for that we all should be thankful to our business partners.
No matter for a budget season or a continuous forecasting: the human factor is randomly covered in the process that may bring the best and the worst of management culture. A special eye on bias during the Performance Management and goal setting process is essential for process quality and to the FP&A skillset.
Time to shed light on the behavioral side of financial planning. With a twinkling eye, the not so obvious psychological patterns unexpectedly surface during every planning season.
„The greatest danger for most of us lies not in setting our aim too high and falling short, but in setting our aim too low, and achieving our mark.“ (Michelangelo)
They do exist: departments that frequently fail to predict month end revenues and pride themselves with a best practice strategic planning process. Frequency is key in both that enables FP&A to separate human-driven deviations from chance.
The 50/50 coin flip to outperform Wall Street can make a substantial count of traders start flawlessly into their 10th career year. For 10.000 starters pure luck will leave 20 on the superstar side. A coin flips to land “heads up” five times in a row has a 3% probability. This depicts the probability to overachieve a goal four times in a row by chance. To identify for this 3% chance of continuously under- or overestimating a target, the “plan and update once a year” cycle will take two years to empirically identify - with a good chance of error - a possible bonus optimized play. Actionable and timely is seeking a communication earlier. This is a strategic long range undertaking and strong argument to implement a rolling forecasting and develop a predictive skill set within the organization. The path to impactful forecasting skills set forward by Philip Tetlock is described here.
Alchian and Demsetz defined a theory of the firm on Social Loafing. In short: management is there to ensure equal and maximized effort in two people carrying a box.
Social Loafing is the proven and measurable tendency to lower your effort in a group effort. In a rope towing contest, individual performance shrinks from 100% towing one on one to 49% per person for teams of eight. Luckily both sides share this fate and a fraction of the muscle loss may be attributed to coordination efforts. To move away from the clockwork of task execution, suddenly attitude becomes a winning parameter in the equation of competitive edges. Transparency of individual performance annihilates the effect. Transparency is not to be mistaken for diversity. Diverse teams perform best only if diverse – and trackable - tasks are to be accomplished. The diversely skilled towing crew will show similar results.
Already separated tasks well in planning? Watch out! As responsibility diffuses on many shoulders, social loafing makes groups take riskier decisions. Yes, we all “share the burden on many shoulders” as a German saying goes. Underachievement, e.g. failing to innovate due to adequate margins, may leave a whole industry open to disruption. Transparency of the individual authority and performance is key. FP&A can support this process by ensuring transparency to drivers and proposals and providing a neutral and responsible risk assessment.
Justification of effort tends to mistake the value of something for the amount put in. The emotional value of restoring and maintaining your grandparent’s car does not reflect the market value. What is a budget worth, if it is created under clear expectations and without hassle?
This cognitive dissonance is found in grueling tests and membership acclamation rites where simply getting the job done and executing on it borne out of the experience is insufficient. Routine is a very good combatant of effort justification. Guidance and clear expectations may also prevent to dilute time from the most relevant tasks. Deciding on the future of the business is a daunting process enough then to be laden with self-justification.
“Planning is essential, but plans are of little use.” Winston Churchill
Nassim Taleb states that five decades of survival are required to make a technology last. VHS and Flash were once hyped and died young. New products of digital and tangible nature are designed on wooden tables, one of the oldest construction materials.
The overstated potential of Neomania is tempting to the budgeteer. Incorporating the newest trends is a sign of being “up to date”. Yet, lessons learned and a register of risk and potential development makes transparent, that the main drivers mostly are of lasting nature.
The wish list of the “have and must to” adds to the dilemma of balancing cost and benefits of the important future potentials. A well trained and experienced brain is required more than a digital heuristic to spread the useful trends from the brief flares of high hopes. The individual assessment again a sign against weighting Neomania too high and it is not to mistaken for succession and evolution.Two short ones to consider at the end.
FP&A makes extensive use and takes preemptive measures on these effects. Both are influential and the bias is used to hide a bitter truth in the middle. There it is hidden best while against public opinion: the first impression is important at an instance; the last words have the lasting effect.
To demonstrate how the brain is wired: choose John or Jim – who does your brain like better?
John who is intelligent, hard-working, impulsive, critical, stubborn, envious or Jim who is of envious, stubborn, critical, impulsive, hard-working and intelligent nature.
The Grimm’s tale on how – literally – missing prudence makes you fall deep is far fetched to explain the Opportunity Cost Fallacy. On the other side, the blind spot to measure a decision only against the current situation “in sight” and ignoring relevant scenarios “at your feet” is described well by a person that permanently ignores his feet.
Our behavior has been shaped evolutionary more than we admit. Being aware of the patterns evident in Management is as important as being aware of the digital patterns brought up by algorithms throughout our systems and external data sources. Business Partnering is a reflection of this need and it encompasses FP&A to immerse in the team while preserving the goal of providing an unbiased view into the future.
There are many definitions of culture. From a business perspective I like the definition of culture as “the beliefs and behavior that determine how people interact and handle transactions.” I like this definition because it includes the word “transactions.” Transactions are unavoidable within businesses. Transactions occur when businesses sell their products or services. Transactions occur when businesses support their people and processes. As a result businesses need a culture that creates value from transactions.
Creating value from transactions comes from an FP&A culture.
Selling products or services validates the value propositions of businesses. Value propositions like accessible, durable, and insightful are areas of emphasis from people who work within the selling functions of businesses. This emphasis can be measured by statistics like net income and net cash provided by operating activities. These statistics can provide insight into how good or bad businesses are in fulfilling their value propositions. Fulfilling value propositions is based on transactions that result in revenues, expenses, and cash flows. The value created from transactions arise from thinking and learning about how to provide as well as promote products or services. An FP&A culture can establish thinking and learning about selling.
An FP&A culture can establish thinking about selling by determining how revenues will be earned. Revenues can be earned by providing services, licensing products, reselling products, and manufacturing products. The ways to earn revenue have distinct characteristics that project value propositions and affect income as well as cash receipts. An FP&A culture also can establish thinking about selling by determining how products or services will be promoted. Promotion can be done through a system of people, process, and technology. Promotion through this system will project value propositions and affect income as well as cash disbursements. Thinking about selling is not a simple task.
An FP&A culture can establish learning about how good or bad selling is. Perhaps the best way to learn about the selling process is through ratio analysis. Ratios like gross margin percentage can provide insight into revenues created from products manufactured or purchased. Ratios like asset turnover can provide insight into revenues earned from assets like buildings, equipment, and intellectual property. Current and quick ratios can provide insight into relationships with stakeholders like customers, employees, and vendors. These ratios serve as learning tools to acquire insight into relationships among value propositions, revenues, expenses, and cash flows. Learning about these relationships can stimulate continuous improvement initiatives dedicated to create value and wealth.
An FP&A culture enhances the value proposition from the selling function.
Supporting people and processes within businesses comes from a number of sources. An accountant supports businesses through tax return preparation and filing. An attorney supports businesses through insight into laws and regulations. A technology specialist supports businesses through education about hardware and software. The sources who support people and processes within businesses are not the primary reasons for people buying the products or services that businesses offer however the sources have an impact on measurements like income and cash flows. As a result businesses need to think and learn about how support will be provided and their effects on the business. An FP&A culture can establish thinking and learning about support.
An FP&A culture can establish thinking about how support will be provided. Support can be provided by people like employees or consultants. Support can be provided by technology like equipment and software. In order for support to be provided it must be acquired and the acquisition leads to transactions. An FP&A culture can focus on thinking about the most effective relationship between the methods of support and their financial effects.
An FP&A culture can establish learning about how support is provided. Support can create financial benefits like increased revenues and/or decreased expenses. These benefits can be established through financial plans, e.g. budgets and forecasts, and compared to actual results. The comparison serves as a way to learn about how support is provided. From learning businesses can make decisions about their support functions.
Like the selling function the actions within the administrative function can be enhanced through FP&A.
My work in private industry allowed me to experience certain cultures. I experienced engineering cultures and sales cultures. I didn’t experience FP&A cultures which is odd. I consider it odd because of advice an angel investor gave to entrepreneurs: I don’t care what your idea is; I want to know how I’m going to make money. Making money is important for not only startups but also existing businesses. Businesses regardless of age exist due to the exchange of money. The exchange of money should form beliefs and behavior that determine how people interact and handle transactions, i.e. an FP&A culture.
Remember… the existence of transactions creates the existence of an FP&A culture.
By Irina Steenbeek, ABN AMRO Bank N.V., Data management consultant
Even if last six years I have been specialized in Data management, I still follow (thanks to FP&A club) developments in FP&A area. While reading some publications on FP&A trends I realized the strong connection between FP&A and Data management topics. So, I decided to share with you some of my observations and experiences.
In the FP&A world among others, it is interpreted as being a trusted advisor to decision makers on both strategic and operational levels.
Where in the world of Data management do we meet ‘decision makers’? The slogan ‘an organization to be data-driven’ became very popular. There are a lot of professional discussions on the meaning.
I can briefly summarize it as the following:
How can the organization become data-driven? At least, several strategies to be implemented by management:
So, your road map for becoming a trusted advisor is sketched.
FP&A managers have a lot of different responsibilities in the area. Company valuation is focused on determining the present value of an asset. What has Data management to do with it?
The ‘Bible’ of DM professionals, DAMA-DMBOK standard, stipulates one of the Data management guiding principles as ‘Data and information are valuable enterprise assets’.
So, the conclusion seems simple: if you as FP&A expert manage a company value, you are also responsible for managing its data and information.
What do we mean by labeling data as an asset? One of the most practical explanations is that data is used as such to make smarter business decisions that allow for companies to become more profitable and/or reduce their potential for risk in regards to how they operate.
But what is expected from you as FP&A guru with respect to Data management?
The answers are hidden in the DAMA standards mentioned above and we still on our way to it.
If you think about Strategic planning and Forecasting then your thoughts turn to DWH and BI tooling and Predictive analytics, which are unambiguously Data management functional areas.
If you keep yourself busy with Performance metrics, Trends, Scenarios, Reports and Analysis you instantly need correct historical data, at right time, at the right place, of adequate scope and of acceptable quality. These are your requirements for data that is to be delivered to you. Execution of these requirements is a part of mature Data management function within your organization.
If your responsibilities are extended to Core processes, Enabling Technologies, and Standardization, then you definitely need to be familiar with Business processes and Data flows, Data and Application architecture, Data distribution principles.
So, you see that unavoidably ‘all roads go to Data management’.
This article only touched the top of the iceberg outlining your main concerns at the Data management area. We all know that ‘the devil in the details’.
The question remains: how to enforce you with practical knowledge and tooling to let you successfully perform as a Trusted advisor and Business partner.
The following range of articles will equip you with the practical toolkit for FP&A professionals.
* ’From Scorekeeper to Trusted Advisor: The evolution of the FP&A Business Partner’, www.fpa-trends.com
** ‘FP&A: Latest trends’. Presentation FP&A Board.
A finance business partner acts as the bridge between the wider business and the financial leadership of the organisation. They work to unite the needs and demands of the group with those of the business with whom they partner, translating the financial strategy into a story they are able to identify and empathize with. They guide their business partners through the various financial constraints and perceived barriers to ensure their business units effectively and efficiently meet their strategic objectives.
Design thinking is a creative and practical approach to problem solving. It involves the creation of multiple options which are then scrutinised through varying viewpoints and lenses to determine the most effective solution. Design thinking is employed solely for the purpose of creating solutions which have yet to be formed, from designing the aesthetics of a new product to the internal workings of a jet engine or designer watch. At its core is a deep appreciation and understanding of the people who will be interacting with the solution and a desire to meet their needs as fully as possible.
Finance business partners are problem solvers. They exist to help their businesses move forward towards a future which not only meets the demands and expectations of the wider business but also the needs of those whose job it is to realise that strategic vision. That is no mean feat.
The role of the finance business partner is well established. The associated change in expectations away from the transactional and advisor role to one in which they are expected to operate alongside the business and provide proactive solutions demands that they adopt a new approach.
Design thinking offers a suite of tools which will allow this new finance role the opportunity to step up and become a true partner. It is inherently flexible and cyclical yet potential solutions must run the gauntlet of financial and operational scrutiny before it is taken forward. Such flexibility enables its practitioners to keep calm in times of uncertainty, confident that if a solution is not quite right they have done their homework and have a number of alternatives to fall back on. Its focus on creating solutions which empathize with their users and which centers on meeting the human and business need ensures they are more effectively integrated into to the cultural make-up of the organisation. This, in turn, reduces the risk of change failure while ensuring the organisation succeeds in moving measurably closer to meeting its overall strategic objectives.
The finance business partner is a finance professional which has succeeded in becoming viewed as a proactive provider of solutions to some of the most strategically relevant problems. Such a shift in expectations has raised the need to approach such problems from a perspective in which creativity, empathy and foresight are combined with financial and analytical thinking to create solutions which meet the needs of the full range of stakeholders.
I would like to highlight key methods and to describe how each can be used to enhance the skill sets of current and aspiring finance business partners.
Design led tools and methods enable a practitioner to get to the core of the problem. They allow the user to uncover the truth. It is from this perspective the finance business partner can then begin to explore possible solutions.
The five whys is a very simple tool. The underlying reasons for the emergence of any given scenario will involve multiple layers of elaboration. Armed with this understanding the five whys method involves asking the stakeholders within our organisations and the final users of our solutions five whys with the aim of gaining additional insight after each explanation.
The power of this tool comes from its simplicity. Leaders do not have the time or patience to elaborate on what they need. They expect the finance business partner to anticipate the intricacies and nuances of the organisation in order to deliver an effective solution. This method ensures that the finance business partner does not take anything at face value but proactively seeks out insights which may not be immediately apparent after the early rounds of enquiry.
It encourages inter-organisational collaboration as each layer of questioning brings the need to involve other connected stakeholders into the process.
For example, a need to understand profitability from a commercial director will involve investigating a number of factors.
Why is profit lower than expected?
The revenue per unit is lower than planned.
Why is revenue per unit lower than expected?
Discount in that category is higher than planned.
Why is discount so much higher than expected?
Group commercial have applied a sale promotion in addition to the market team resulting in a number of products being heavily discounted.
Why are products being discounted at a group level and a market level? A large number of slow-moving lines have been discounted centrally to enable clearance of stock which the market team was not aware of?
Why are these products not selling through at the rate of sale that the organisation has forecasted? Demand for these products is not as strong as expected.
The example above is a case in which the risk in the decreasing margin came about as a result of the decisions of a different team within the organisation. However, this insight was not uncovered until the third iteration. If this method had not been followed the risk of getting stuck in the detail of answering the first and second whys and becoming preoccupied with seeking out a solution to mitigating this risk at this level would have taken far longer than that which came about by delving a little deeper and wider.
The market team in this example have little influence over the decision making at the group level. However, they have the power to control the promotional planning with their market. The solution here was beautifully simple. By building relationships with the central commercial teams the market was able to get forewarning of group promotional planning. Armed with this knowledge they were then able to amend their own planning to ensure that they did not apply discounts on top of those products group were try to move through the central stores. This restored the profitability and the risk to the margin was mitigated.
This example illustrates that many problems within an organisation require a deeper level of questioning in order to uncover the underlying cause. However, once the layers are revealed the solution can often be beautifully simple.
Good design seeks out simplicity in its solutions and this should be how the finance business partner approaches their decision making processes.
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