Nilly Essaides, Director & Practice Lead, Financial Planning & Analysis, AFP
Financial planning and analysis (FP&A) is working harder than ever to collaborate with the business to drive 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. Looking outside of finance is a big theme in the profession, and it’s a constant theme at AFP roundtables across the country and in my 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 institutionalized finance engagement into the decision-making processes regarding 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 organizational structure.
How the FP&A function is organized has a lot to do with a company’s growth curve, 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 organizational structure can be more centralized. Finally, large, complex organizations may need both a corporate function and embedded staff. The ultimate goal of any organizational structure is to support an effective delivery of services to internal and external customers. That’s true for FP&A as well.
“Companies need to anchor their finance organizational structure to the demands of their own growth trajectory, markets and industries,” said Vic Datta, CEO of Resilicore.
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 the right place. It needs to be positioned to communicate up to senior management, delivering analysis and telling “stories” to drive enterprise performance. It also needs to be able to communicate downward and across functions, to support the operations. Depending on the company, that may mean a centralized function at headquarters, a decentralized function with FP&A professionals distributed throughout the company, or most commonly, both.
There are pros and cons to each approach. Centralized functions may not be as close to operations, struggling more to collect information and deliver decision-making support and analytics. Meanwhile the decentralized model often hampers a holistic view of the company—and the critical role 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 San-Diego-based Volcano Corporation, which designs, develops, manufactures and commercializes a range of precision guided therapy tools. According to Blake, 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 CFO, they effectively have a dotted line to Blake.
The benefits 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, spreading best practices and ensuring everyone sees the big picture.
At Intel, A hybrid FP&A function has a different reporting structure, according to Brice Hill, vice president of finance. Hill says that almost all of the organizations have expense and capital analysts who are part of the FP&A function. The embedded FP&A professionals report on a solid line to finance and on a dotted line to business operations. According to Hill, 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,” said Hill.
Challenge: Measuring performance
One of 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. Williams, who will address these challenges in an upcoming session at the 2016 AFP Annual Conference in Orlando, believes 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.