FP&A (Financial Planning & Analysis)-driven innovation is stifled by data processes
Unfortunately, more time is spent in FP&A on less value-added tasks like internal processes instead of contributing to innovative solutions to drive the business. A recent report discussed in CFO Dive claims that FP&A-driven innovation isn’t happening nearly enough in companies because data processes are too siloed, manual, and error-prone. Many CFOs have been trying to transform FP&A for years, however the research shows that most FP&A staff spend more than 75% of their time gathering and managing data, leaving only 25% of their time for the value-added work. Sound familiar? Innovation requires dedicated focus and time beyond the daily tasks of explaining the numbers.
Time is Money
This is the prime example of how time is quantified into money lost. This is not only a reality of the FP&A function, but also other groups within organizations who spend more time focused on internal initiatives than externally focused tasks that can add significant value. When processes put in place to optimize implementation become obstacles, this research calculates the financial toll costs U.S. companies $7.8 billion – the combination of FP&A teams’ manual work each week, such as budgets, month-end closes, and forecasts, with annual company budgets taking up to six months to prepare.
But what can innovation really look like when it’s driven by FP&A?
One example of an FP&A-driven innovation that I love as noted in the article is how an FP&A function at Amazon determined that free shipping on purchases was more powerful than giving everyone 10% off. We all know what happened here, “Amazon Prime” was created, (with a minimal subscription). These are the types of precedents that can lead to new ideas and creative thinking within FP&A across industries.
Zero Based Budgeting or “ZBB” was invented by a young accounting manager at the time for Texas Instruments. Peter Phyrr developed the idea in the 1960s which later became the foundation of budgeting for the State of Georgia which was led by Governor Jimmy Carter at the time. Since 2013, this process has grown by 57% each year. Iconic brands like Campbell Soup Co, Kellog Co, and Ford Motor Co have adopted this form of budgeting. It forces companies to annually consider what the most critical needs and opportunities are and to ensure teams start with the “best” solutions vs. adapting or leveraging the outdated tactics already in place.
Integrated Business Planning
The finance departments in many companies are stigmatized as the people that always say “no” and are too often overlooked as key stakeholders in strategy and key decision making. Integrated Business Planning could be part of the solution in how the FP&A function can play an innovative role. It is a process for aligning a company’s business goals with its finance, supply chain, product development, marketing, and other operational functions. It supports business objectives and financial targets with strategy and implementation across the entire business.
The power of relationships
But this isn’t just about restructuring processes and communications, it is also about building relationships. If you work in FP&A, you hold the potential to leverage your skills to transform and innovate your whole business, not just your finance function. You must see yourself as a business partner and that requires building relationships with the right people. To have an integrated approach, you need to see yourself as an integral part of the business, and every other department needs to see that too. It can become a self-fulfilling prophecy to focus just on the operational side of finance, compliance, processes, and everyday reporting. But the vital role of FP&A is to be a strategic business partner not only with the rest of the business, but ultimately your customer.