Financial planning and analysis (FP&A) is working harder than ever to collaborate with the business in driving faster and smarter decisions. By working closely with operations, FP&A can identify key business drivers, help pinpoint savings and growth opportunities, and ensure business leaders execute the plan.
Finance looking outside of finance is a big theme in the profession; it’s one that consistently features at the Association for Financial Professionals’ (AFP) roundtables held across the United States and also in the writer’s own conversations with dozens of FP&A leaders.
How close is close enough?
In some cases, corporate FP&A has become adept at building strong ties with business unit leaders. They’ve built the credibility that encourages operations to ask for help when they need it. They’ve institutionalised finance engagement into the decision-making processes for developing investment and cost management initiatives, and created strong links with the strategic planning process.
In other cases, FP&A works even closer, by embedding staff in the business units themselves. Growing volatility in the business environment, cost pressures and a new focus on enterprise performance has sparked a renewed interest in FP&A organisational structure.
How the FP&A function is organised has much to do with a company’s growth curve, as well as its industry and corporate structure. Fast-growing companies often need to have more staff in the field than mature, slower-growing enterprises. Companies with few business lines and a simple organisational structure can be more centralised.
Finally, large complex organisations may need both a corporate function and embedded staff. The ultimate goal of any organisational structure is to support an effective and efficient delivery of services to internal and external customers; that’s true for FP&A as well.
“Companies need to anchor their finance organisational structure to the demands of their own growth trajectory, markets and industries,” says Vic Datta, chief executive officer (CEO) of Resilicore, a Virginia-based business management consultant.
In order for FP&A to deliver the added value it can provide to senior management and operations, it needs to have the right people in place. It has to be positioned to communicate up to senior management, delivering analysis and telling “stories” to drive enterprise performance; it also needs the ability to communicate downward and across functions, to support the operations.
Depending on the company, that may mean a centralised function at headquarters, a decentralised function with FP&A professionals distributed throughout the company or, most commonly, both.
There are pros and cons to each approach. Centralised functions may not be as close to operations, struggling more to collect information and deliver decision-making support and analytics. Meanwhile, the decentralised model often hampers a holistic view of the company – and the critical role that FP&A plays as an independent advisor – because allegiance to business unit leaders creates conflicted priorities.
John Blake is the director of FP&A at Volcano Corporation, which designs, develops, manufactures and commercialises a range of precision guided therapy tools. He reports that Volcano has a finance team located at its San Diego headquarters, but also embeds finance staff in each major geographic location – a group of accountants and one person who acts in an FP&A role. While the local finance teams report directly to a local chief financial officer (CFO), they effectively have a dotted line to Blake.
The benefit of this dual approach is that FP&A gets to know the business and key players on a deeper level. It understands their challenges and can be “part of the team,” while keeping HQ in the loop and spreading best practices and ensuring everyone sees the big picture.
At US tech giant Intel, a hybrid FP&A function has a different reporting structure, according to Brice Hill, vice president of finance. Hill says that almost all Intel’s organisations have expense and capital analysts who are part of FP&A function. The embedded FP&A professionals report on a solid line to finance and on a dotted line to business operations. He suggests that one of the less obvious outcomes of embedded FP&A staff is creating a finance-oriented culture within the business.
“If you embed finance people, and their mission is to make sure decisions are financially oriented including protecting the shareholder interest, that process becomes embedded in the business,” Hill adds.
Challenge: Measuring performance
Among the challenges brought about by this dual-responsibility structure is measuring the performance of the embedded FP&A staff. According to Bryan Williams, associate director of strategic planning and analysis at La Jolla Pharmaceutical Company, success measures for FP&A professionals sitting within business units are often quite different from those in headquarters FP&A. He says that a key characteristic of good performance for embedded FP&A executives is not only strong financial acumen but also a deep understanding of the business in which they operate – a much harder quality to measure.
There are ways FP&A teams are beginning to quantify how they add value to the businesses they support. As FP&A plays a more significant role in business performance, more FP&A executives will be tasked with finding ways to evaluate their staff’s impact from a business perspective.
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