In this FP&A Talks, we speak with Thomas Lundell, Finance Director and Chief of Staff for Enterprise Countries at NetApp. Thomas shares his story of how he took part in building and transforming the FP&A team at NetApp. FP&A Talks is a collaboration between FP&A Trends Group and Anders Liu-Lindberg
Companies are constantly looking for ways to improve their performance and there’s no doubt it’s easier if different functions work together on finding improvement ideas. It’s clear that certain functions execute the ideas while others support on the sideline and manage the outcomes of the ideas. FP&A is such a support function that typically works at the corporate or HQ level with strategic concepts ideally supporting senior leaders or top management even with driving their agenda. So, how can FP&A teams most effectively help their stakeholders improve performance? The answer is Business Partnering and let us expand on that.
Business partners help drive company performance
As a business partner, the job of the FP&A team is to participate in strategy meetings where different options are discussed to drive the company forward. The FP&A team should help qualify each option so that the best choice can be made. The team should even give a recommendation based on what the analysis of the options shows. Once a decision is made it filters down to the operational units for execution and the FP&A team will keep track of the overall performance. To really drive the performance, however, the FP&A team should stay in close dialogue with the operational units and help the line managers as well as the local finance teams better understand the strategic choices made and how to translate them into execution. In this case, Business Partnering goes both up and down in the company hierarchy where first the FP&A team helps senior management make the right strategic choices and later assists the operational units to understand the choices and translate them into local initiatives. Without this link, there’s a very high likelihood that the translation of strategic choices is misinterpreted and company performance suffers. To visualize how FP&A can use Business Partnering to improve company performance we can look at below flowchart.
This chain of actions can essentially be repeated over and over as a continuous improvement cycle of company performance. It “only” requires that the FP&A team is treated as a trusted partner by both senior management and the operational units.
How is this different from what FP&A has always done?
Surely, there are pockets of excellence here and there where a FP&A team has always been involved in making strategic decisions and translating them to the frontline. However, FP&A has been focused on getting strategic choices handed over to them to forecast the effect of same and prepare a budget that would show the total outcome. Then a message was sent to operational units to hit those budgets and every time they would fall short the line manager would receive an e-mail (not even a phone call) to explain what actions (s)he would take to improve performance. Not a lot of team-work or collaboration is involved here and often the FP&A team would fail to understand why the operational units didn’t just follow the plan! In simple terms, they never understood the plan (and you must wonder if the FP&A team did either) hence no wonder why performance didn’t follow.
One example could be that due to a bad year management decides to tell all units to cut 10% from their spending. No direction is given as to what actions should be taken. No patience is given to non-performance. Perhaps an initiative to cut 10% might not be a strategic action but still, the FP&A team needs to act as a partner to management here and help them make some smarter choices. FP&A should know where there are improvement opportunities both on revenue and costs to reach the same impact as a 10% cut on costs across all units would yield. At the same time, FP&A can easily help translate the strategic action to operational units because they have been deeply involved in the decision. Instead of a one-sentence order to cut 10% FP&A can pass on suggestions as to initiatives the operational units can take to reach the desired results. This will make it easier for everyone to deliver and FP&A is at the center of this.
In conclusion, Business Partnering is what will make not only the FP&A team more successful but more importantly also improve the overall company performance. So, what’s stopping you from getting started right away?
The article was first published in prevero Blog
In my last blog, we discussed what FP&A Business Partnering is and what you need to focus on to be successful. Now we’ll turn to how to implement the concept in your finance function and more specifically with your FP&A teams. Before we examine some of the implementation options you have it’s important to state that you cannot just send your FP&A team home on a Friday and have them equipped with a new business card on the following Monday with “Business Partner” added to their title. Many finance functions have tried that in the past and none of them — I repeat none of them — have been successful. Being a business partner requires a specific skillset that needs to be added on top of what the FP&A professional is already able to do. Furthermore, specific conditions should be in place to increase the chance of success.
Two main options for implementation
Depending on the current state of your FP&A function you have some choices to make before you start implementing Business Partnering. To simplify, we’ll look at two stages.
- Your FP&A function is basic without state of the art system and is frequently challenged on whether the numbers and analyses it delivers are correct or not.
- Your FP&A function has already seen quite a bit of transformation and already has a cloud-based BI platform and advanced financial models to predict the future. It’s well-known for its financial savviness but doesn’t get out of the office much except when summoned to meetings.
If you’re in stage #1 you’ll find that trying to implement Business Partnering will be an uphill battle. As a business partner trust is your main currency yet if you keep showing up with wrong numbers in dated Excel graphs no one will trust you. Instead, it’s recommended that you look to transform some of the more basic processes and invest in new systems to bring you up-to-date. If you still want to go ahead and implement Business Partnering you need to be very clear when setting expectations with your business stakeholders and accept that your business partners will do a fair bit of reporting, to begin with while you upgrade the other areas of your FP&A function. In stage #2 your stakeholders have plenty of trust in your FP&A team yet they’re not used to being engaged with your team members on their decision-making. Rather they’re used to just receiving their report and making up their own mind. To change that you need to formulate a value proposition to help them create more value and then positively surprise them with your insights. You’ll likely also need to train your financial analysts and FP&A managers in partnering skills and plan for how they can further build their business knowledge.
A role or a mindset?
Another important choice you need to make is whether you will create specific roles titled “FP&A Business Partners” or it’s simply a mindset you’re implementing. We’ll explore the mindset in a later blog post but if you go for creating a new role you also need to be specific about how the role of FP&A Business Partner is different from that of an FP&A manager or a financial analyst. The main difference is that where your old roles deal with reporting and analysis, a business partner role uses the analysis to deliver insights to business stakeholders to influence their decisions and create an impact. In the case of creating a role you also need to be mindful of what people, you put in the roles. I’ve seen it countless times that new roles were created but they got filled with the same people with no real training provided. Don’t expect something different to happen just because it has a new name. Here’s a quick step by step guide to select and develop your business partner team.
- Select the most important attributes of the business partner role like problem-solving, communication, etc.
- Carefully evaluate your people based on the attributes you’ve selected.
- Categorize them into three buckets: fit for purpose, maybe, and not fit for purpose
- Create an action plan for the maybes and find other roles or let go of the not fit for purposes
- Hire new people to fill the holes based on your selected attributes
- Develop or find externally suitable training to accelerate the performance of your new team
In conclusion, you need to analyze the current state of your FP&A function and whether it falls into state #1 or #2 and if state #2 then whether it’s a specific role you want to create or simply the mindset of a business partner. If you create a specific role, then follow the step by step guide to select the right team.
The article was first published in prevero Blog
As finance functions around the world have been transformed to run very efficiently by utilizing Global Shared Service Centers in low-cost locations, companies are starting to demand more effectiveness from the finance function.
Essentially, Finance is now doing things right but not necessarily doing the right things or rather enough right things. Finance is tasked with delivering better Business Intelligence and more importantly better insights to influence decision-making in the right direction and creating an impact on company performance. At the center of this shifting demand is the FP&A function which needs to deliver better analytics but also needs to partner with business stakeholders. While always an analysis function it’s much more challenging to develop meaningful relationships with stakeholders as it requires completely different skills vs. the traditional role of FP&A. To help facilitate this change we will take a closer look at the term “Business Partnering” and explore what it means for the FP&A function.
“Business” and “Partnering”
Let’s then disseminate the two key terms and discuss what they really mean.
Business: Seems obvious that this is about the company you work for and the industry it competes in. Too often though FP&A professionals have been occupied with purely looking at the numbers rather than connecting them to a business context. A trend is a trend regardless if you sell flat screens or ice creams? However, these are two completely different markets and the production, supply chain, marketing etc. all function in different ways. Hence, to build a relationship of trust with your stakeholder irrespective of what function they work in you need to understand what they do. We will explore tips and tricks to learn about the business in a later blog post.
Partnering: To partner with someone you need trust. Without trust, there’s no partnership. That holds true in business as it does in your private life. To establish trust with any given stakeholder you can analyze what elements of the trust equation you need to work on. The elements are Credibility, Reliability, Intimacy less Self-Orientation. Often FP&A professionals find it hard to build intimacy with others yet it’s important to remember that being intimate with someone doesn’t mean being private with them. Rather you can connect on a personal level talking about some experiences you’ve had together or a common interest. Most importantly, you need to know the profile of your stakeholder. Some like small talk whereas others just want you to deliver your recommendation in 30 seconds or less. Once you have figured out how to build a relationship with your main stakeholders all you need to do is to increase your interactions with them be it in a formal meeting or at the coffee machine. We will also explore the tools for how to build partnerships in a later blog post.
It's difficult to be a good business partner if you fall short in either of the two categories and there are no shortcuts really to becoming good at it. It takes hours and hours of work and practice but you got to start somewhere.
Business Partnering in the context of FP&A
FP&A is often a corporate function that delivers analyses to senior management hence tend to work more at a strategic level rather than at the operational or tactical level. That means you need to understand the strategy of your company and challenge strategic decisions. You also need to partner with both senior leaders as well as frontline functions that deliver critical inputs to your planning and analysis. Senior leaders are short on time and leave very little room for errors. Hence, FP&A Business Partnering differs from Finance Business Partnering on the level of the stakeholders to deal with as well as operating at the strategic level. In a later blog, we will look at how the FP&A function use business partnering to improve company performance at the strategic level.
To understand the challenging part about being successful with business partnering in the FP&A function then try and remember the last time you showed up with wrong numbers in your management presentation or made a forecasting error that led to a wrong a decision. We’ve all tried it but never really thought about how much it damaged your partnership with the management team. Had you only had the business understanding to know that your numbers clearly didn’t fit with what happened in the business during the last month or that your forecast clearly wasn’t realistic. Now that you know you can get started on building trustful relationships and help your company improve business performance.
In conclusion, what’s important to know about Business Partnering is that you need to find ways of increasing your business understanding in addition to building relationships with your key stakeholders through establishing trust. By doing this you will be able to leverage your FP&A skills and your FP&A team in a completely different way which will boost value creation in your company.
The article was first published in prevero Blog
In this FP&A Talks, we speak with Thomas Lundell, Finance Director and Chief of Staff for Enterprise Countries at NetApp. Thomas shares his story of how he took part in building and transforming the FP&A team at NetApp. FP&A Talks is a collaboration between FP&A Trends Group and Anders Liu-Lindberg.
FP&A can have many roles in the company (from transaction through controlling and to business partnering), but what role is needed when?
Three development stages of a company: start-up/growth (transactional FP&A), transitioning from growth to steady-state (controlling cost, governance, and more), transformation/profitability/growth boost to reach the next size level (business partnering).
Thomas, can you describe how you experienced this at NetApp when you arrived about twelve years after the company was founded?
I joined NetApp from Swedish multinational Electrolux about 15 years ago, where I most recently had worked in the FP&A department. At Electrolux, I would say that the FP&A department of the European Home Products division was already quite advanced. In addition to managing the P&L, Balance Sheet and Cash Flows using traditional accounting measurements and systems, we had also built our own contribution margin model, data warehouse and reporting system. This allowed us to work very close to the business leaders and supporting them in driving business performance. Business Intelligence and Analytics was definitely the responsibility of Finance at Electrolux when I was there.
When I joined NetApp, I didn’t join the Finance team, instead, I joined the Sales Operations department, where I rather quickly worked my way up to Director of EMEA. What I discovered at NetApp was that many of the things that the FP&A department was doing at Electrolux, Sales Operations was doing at NetApp. In the beginning, this was very confusing to me. I couldn’t really make sense of it, to be perfectly honest.
I think that one of the differences was that NetApp was a significantly smaller company than Electrolux. But maybe even more importantly it was also at a very early stage in its business lifecycle. NetApp was a teenager when I joined, whereas Electrolux was founded in 1919 and could have been the grand-parent.
What I learned was that in the early stages of a company, the core finance responsibilities are really about setting up a general ledger, figuring out how to do payroll, setting up AP and AR, defining the entity and tax structure and many other foundational financial controlling activities. Because Finance is so busy doing this, they are not really involved in driving business performance. So, in my view, this was the main focus of NetApp finance at the time when I joined, but we had already started to move into the Controlling stage.
It’s interesting that you started outside of Finance in the company. What was your first reaction when you moved to Finance?
After a few years in Sales Operations, I was asked if I would be interested in setting up a new FP&A function in EMEA Finance. I was indeed quite excited about moving back in to finance and taking on this the task – remembering all the things we used to do at Electrolux and how closely we worked with the CEO and the European board at the time, analyzing business performance, building strategic plans and doing advanced analytics. This should be great fun!
However, I was in for a bit of a shock in the beginning. Though NetApp finance had evolved from doing only the core finance activities mentioned earlier, we were still only in the Controlling stage. This means that most of the focus was on controlling expenses, headcount, and even performing transactional activities like accruals. Having been outside finance for a few years, I had quite a steep learning curve in the beginning, and the job was still quite interesting. But I knew that this is not what the top-performing finance departments spend their time on and I knew that NetApp had to evolve to the next stage of the FP&A maturity model.
The good thing was that I was in the lucky position to have the experience from Electrolux as well as having worked in the business at NetApp over the last few years – so I knew where we had to go and what competencies we had to build.
So, there was quite a task ahead of you and the leadership to transform the function. How did you go about it?
I think the entire EMEA finance department underwent a rather significant transformation at the time, but if I limit my answer to EMEA FP&A, this certainly wasn’t easy. At first, you must set out the vision of where you want to be as an FP&A organization and do the usual gap analysis, in terms of processes, people and systems. But more importantly, you also need the buy-in from business leaders to start the journey. This is probably the most difficult and challenging part, actually.
If your business leaders are used to having FP&A controlling OPEX and headcount, and suddenly FP&A is talking about investment allocation, strategic planning, and wanting to “influence” business decisions…that can be quite confrontational. So, you will likely have to invest time in convincing and explaining the unique selling point and value add as an FP&A organization to the business leaders. You must explain that you are there to help the business to achieve financial targets and key sales objectives, not to be a road blocker and slow things down. You are not there to manage their expense budget; you are there to help them drive business performance and gain market share. This change in mindset in business leaders is not something that is achieved by the flip of a switch. So be prepared to invest a lot of time and resources here, in selling the change to business leadership.
Many companies struggle with turning their FP&A teams into business partners. How did you succeed at NetApp?
There really is no quick and easy way to do this, because at the end of the day it is about people. You can build the most fantastic business intelligence systems and dashboards, you can automate processes and off-shore transactional activities, you can build standardized reporting and implement robotic process automation. All of this will free up time for your people and allow them to become business partners and add more value to the business. But if the employees don’t know how to be business partners, all that investment in standardizing and automation will only lead to cost savings in the finance department. It will not lead to a finance department that can use their unique position in the company to drive better and more rational decision making and improve overall business performance. So the foundation for success is people and proper change management.
Prior to embarking on our transformation journey, I already had a very strong FP&A team, with a good mix of long-term employees and people with external experience. However, unfortunately, it was clear that not all our employees could make the journey we were embarking on. I had to make some very tough decisions with some very wonderful people. But they were just not the right people for NetApp at that stage in our life-cycle.
Of course, I also needed to train and improve the skillset of my remaining team members. In particular, they needed to better understand the commercial aspects of our business, our entire Go To Market and business model, as well as our product and solutions. In my view, you cannot be a finance business partner if you don’t know the products you’re selling – and in IT that can be quite difficult. Some of my staff had a natural interest in IT, and needless to say, they transitioned the easiest. For others, this was more of a challenge.
I also hired external top-talent from companies further ahead in the maturity model than we, like General Electric and Unilever. I knew that these guys were very smart and flexible enough to learn a different business model, and I could use their experience from working in more mature companies and industries.
After all the transformation how do you see the FP&A team at NetApp today?
I see that we have made a lot of progress in FP&A, but we are not there yet. We need to continue to invest in people development, to think about what we can do differently, and to find areas where we really can add even more value to the business. In any case, FP&A transformation is not a finite game, it is an infinite journey that we have embarked on.
Even though FP&A transformation is not a finite game, I think you can still talk about “wins” along the way. Certainly, we have had some great wins, in particular, in strategic planning, investment allocation, forecasting processes, and predictive analytics.
I also think that the relative position of FP&A in the company has changed a lot, as we are much more present throughout the organization and have more influence on the strategic direction of the company. And when speaking to FP&A professionals from other companies I do get the feeling that we are quite advanced at NetApp today.
What learnings can you share with other FP&A professionals looking to do a similar transformation i.e. what went well and what could you have done better?
I think that we could have done a better job “selling” the FP&A transformation to the business leaders to get their buy-in. We struggled a bit in the beginning to convince the business of the value-add of a more commercially and strategically focused FP&A department. We could have invested more time and energy here.
In terms of what went well…we did make some great hires into the company. We purposely looked for the right team composition, both in terms of technical profiles and personality profiles. We used DISC profiles to make sure we have a good and complementary mix where we could drive synergies of the differences. I also think the change management of existing FP&A staff to take on that more market-focused business partnering role went very well as well.
Today, there are many companies that could need an FP&A team like the one they have at NetApp. For one, companies live shorter and will transition faster through the various stages and add to that many companies are undergoing transformations as we speak. Now, more than ever, it’s time for FP&A to step up!
It’s no easy task to do a full-scale transformation of a finance function and eventually turn the FP&A team into business partners. However, it’s great to hear about success stories like NetApp’s that can be found out there!
Where are you on the journey and what are you struggling with? Tell us and we’ll see how we can help you!
We all know the budget and we all hate it! So why do we continue to do it when it represents a static picture of the world seen at one moment in time? It’s not like we haven’t realized that the world is a lot more dynamic these days.
We’ll explore this topic in the next episode of FP&A Talks Series a collaboration between FP&A Trends Group and Anders Liu-Lindberg. In this episode, we speak with Knut Fahlén, a management consultant at Ekan Management and author of the book Dynamic Management Strategy.
Knut has been fighting the budget for years and is trying to make companies understand that they need to change their management model to cater for the dynamic reality that we face every day. But first, let’s stick to the budget…
Here’s what we think is wrong with it:
It’s one number with three distinctly different purposes being a…
- …resource allocation
There must be a different way of doing this to cater for an ever-changing world, right?
Knut, you’ve spent most of your career working with FP&A, business controlling and written three books about business dynamics and two about the concept Beyond Budgeting. What are the most prevailing issues you find with companies continuing to do traditional budgeting?
There are at least 12 arguments against the traditional budget discussed in literature and they can be grouped into three major areas.
- First, the budget process is seldom strategically focused and is nothing more than a time-consuming number-crunching exercise about cutting costs. Even if it is necessary to discuss and coordinate financial numbers and business activities, these discussions do not have to follow a yearly plan with December 31 as a fictive deadline. This is, in fact, dangerous in today’s turbulent business environment.
- Second, the budget process is often very time-consuming and can be costly with little or no value added to the business. Today there are more efficient ways of working with resource allocation, forecasting and target setting to name a few good purposes with the budget. How this is performed today is not in line with the reality and need for dynamics and agility.
- Third, the process strengthens hierarchical command-and-control and generates a lot of dysfunctional behavior in the organization. Sandbagging, myopic behavior, manipulation of numbers around year-end are some well-known dysfunctionalities.
What would you propose that they do instead?
What many companies are doing today is separating the budget process into three separate processes adopted to their business model and business environment. The resource allocation process should be based on strategic choices, “investments portfolios” or areas, and adopted to each company’s business rhythm. Not a yearly event where “the bank” is open once a year.
The target setting process should work more with relative numbers and preferably in relation to others. If a target is designed this way you could do a good performance even if you did not meet the fixed target called the budget. The whole performance potential will also be un-locked, and not locked between a ceiling for revenue and a floor for cost. Cost must be considered good if it contributes to revenue. To monitor the cost/income relation could be one number defining your performance instead of if you reached the fixed negotiated budget number.
The forecasting process should be more focused on real numbers on a rolling basis. By monitoring financial and non-financial numbers (cost and value drivers) on a rolling basis you can forecast and plan for a lot of scenarios. You will also get early warning signals by doing so instead of using self-biased forecasts saying that there will be no deviation from the budget at year-end.
What I propose is to manage the business around three numbers instead of one fixed. The allocated number is your strategic choice, the target is where you want to end or continue to strive for, and the forecast is where you might end up.
A concept like beyond budgeting has been pushed widely in the past decade, yet few companies have been truly successful in their implementation. Why do you think that is?
I have helped implementing parts of the beyond budgeting concept in a few companies and have met people or read stories from over 100 companies. Their failures sometimes come from fear of letting go of what they know and are familiar with. This fear usually comes from a new CFO, CEO, the Board or from auditors.
I believe auditors must look more at the company’s management model instead of judging companies by the same yardstick, the budget. Think about it. How come that just about all companies around the planet have the same management model focusing on budgets and December 31 as a fictive deadline? The truth is that many of our most successful organizations in the modern world have innovated their management model to be dynamic and to gain competitive advantage.
It’s clear that going beyond budgeting is complex and I have tried this too. We did this ten years ago and I was project lead on the implementation. In one way you can say we won the battle and implemented the process but lost the war of changing the way we operated and managed the company.
How do you think we can simplify things to make it easier for companies to succeed?
Work a lot with communication and visualization. My colleagues and I implemented a new resource allocation process and forecasting process at a pharma company recently and for some of the discussions, we even took away numbers and worked with bubble diagrams and trend diagrams.
The discussions from this way of communicating became very open. Among the benefits were increased transparency and cooperation, heavily reduced time spent with tedious number crunching and planning. At the same time, marketing cost decreased but revenue remained, or trended, as before and they even had more fun in the whole organization. This last feedback – FUN – is what I am most proud of.
If you were to suggest a concrete plan for how companies could become more dynamic in how they manage the company what would it look like?
There are ingredients, but no ready recipe. I would start to listen to others, read books and get inspiration. There are a lot written and the discussion is out there. Then, I would ask for help because there are so many pitfalls that you don’t have to experience. And I should design the model to 80 percent and then jump and learn.
To follow a change management model is also necessary to succeed. I suggest you have an idea of 1) the vision, 2) what’s in it for individuals in the organization, 3) the knowledge about dos and don’ts, 4) the resources needed to work with the new way of managing and 5) a rough plan working with reasons and visions and the three processes from a holistic perspective. Thus, the concrete plan does not exist but the framework for implementing a dynamic management model exists.
If there was just one thing people should take from this change in process and go implement immediately what should it be?
Don’t start with rolling forecast. Start with your strategic allocation and do it approximately right – not exactly wrong. Then monitor your numbers within your strategic areas – your portfolio. From trends or seasonal variation, you will be able to calculate forecasts that can be discussed and made to plans and activities based on other intelligence in the organization. This will make your organization more forward-looking instead of backward. However, not every organization can do this the easy way. You must design, adjust and find your own way.
There’s no doubt that many companies have over complicated the change in management model to something more dynamic. And because they then failed to realize the expected benefits they very fast defaulted back to the budget or shied away from making changes altogether.
However, there are better ways of doing this and in this FP&A Talks we’ve presented you with some practical tips on changes you can start working on right away. We hope that this will get you started on becoming more dynamic and encourage FP&A to lead the way.
We all know the budget and we all hate it! So why do we continue to do it when it represents a static picture of the world seen at one moment in time? It’s not like we haven’t realized that the world is a lot more dynamic these days.
What is the Holy Grail for any leader? For me, it is to create a high-performance team AND to sustain that team over time through high-performance leadership. That is not easy to do, so when we get the chance to learn from someone who has managed to do it really well, we must pay close attention. In this first “FP&A Talks” we’re speaking to Fredrik Hedlund, Senior Vice President and CFO for Global Connect at Nielsen. Fredrik is one of the few senior leaders who has truly invested in creating a high-performance leadership team and it shows. “FP&A Talks” is a new series running on fpa-trends.com featuring senior leaders in Financial Planning & Analysis who share their views on how we can create a world-class FP&A department.
FP&A professionals know their trade very well when it comes to the technical skills used to plan, forecast, and execute the strategy of a company. However, to truly influence the strategic directions they need to be able to influence their stakeholders.