The FP&A Trends Webinar: Digitised FP&A Business Partnering: The Formula for Success
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The FP&A Trends Webinar: Digitised FP&A Business Partnering: The Formula for Success
Click here to view details and register
By Amarnath Kamath, CFO, Malaysia, Indonesia & Philippines at AXA Group Operations
Irrespective of the industry you work in, I am sure all of you would have noticed a huge change in the way your business operates in the last decade. You may have seen competition from previously unforeseen competitors, your CIOs talking about new digital ways of doing business and the utter lack of ready talent in your teams to manage this new challenge.
I am sure most of us have seen or heard comments from our senior leadership such as:
FP&A teams are now expected to play a crucial role in every company’s digital transformation process as they act as gatekeepers for critical financial and operational information across the entire organization. This includes not just pure financial information but also data relating to sales, operations and supply chains, as well as real-time industry and market statistics.
However, what’s happening, in reality, is that finance as a function is not transforming itself at the same pace as the business, it is operating in. In many cases, we are held back by old practices and processes which have largely become irrelevant in the new age. In this article, I will try to illustrate by using a few analogies, the view of people outside of finance. My hope is that these analogies will give you some food for thought on how you can transform your own team from a reactive reporter to a proactive partner.
Let me try to illustrate how delayed or aggregated financial information looks useless to our internal customers by using a bowling analogy (adopted from Cost & Effect – Robert S. Kaplan & Robin Cooper).
Think of your department head as a bowler, who is throwing a ball at pins every minute. But we don’t let the bowler see how many pins he has knocked down with each throw immediately. At the month end, we close the books, calculate the exact number of pins knocked down during the month, compare this total with a standard and report the variance back to the bowler. If the total number is below the expected standard, we ask the bowler for an explanation and encourage him to do better, next period. You can imagine we cannot expect to build many world-class bowlers with this approach. We did not give timely feedback and also this feedback did not have qualitative and causal reasons to explain the performance.
Furthermore, monthly performance reports also tend to have extensive indirect cost and overhead allocations, so the managers are held accountable for performance of factors which are not controllable by them nor traceable to them, leading to frustration. Continuing the analogy of the bowling alley, think of a company having 35 alleys representing different departments. We keep detailed records of the performance in each alley over the month and then we report back the average to all the bowlers (say something like 8.27456). This number may be very accurate to the decimal but it is completely useless as far as the bowler is concerned. They do not get any feedback on how they can improve in their next toss. Ideally, they don’t want the numbers to be contaminated or influenced by the actions of others over whom they have no control. But this is how most of the finance internal reports provide information to the stakeholders.
I hope I have managed to show you the view from the side of the business and why they think. So, what can you do to be more proactive? I will explain to you a few basic things I implemented in our business where we were facing the same questions of relevance:
Things have become more unpredictable as we witnessed in 2020 with the pandemic. But remember the winners are the ones who find solutions to every problem. In these uncertainties, data-driven decision making is the only solution and FP&A are the only guys who can support this. Keep an open mind, embrace change and keep a business-oriented approach to our department. This is the only way we would be relevant and become critical partners to the business.
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