Why FP&A must transform the strategy process

By Adaptive Insights in Expertise, Financial Planning
By Anders Larsen Liu-Lindberg (Adaptive Insights)

Do me a favor and think about the strategy process for a moment. You start out with high-flying ambitions, getting inspired by some of the world’s greatest thinkers. You do brainstorming sessions about all sorts of initiatives you want to launch to become a world-class company. You see presentations from all your business units and product lines about what they want to achieve and how much funding they need to achieve it. They all want a “Yes” from the CEO.

Then you start to become practical about it. Too many plans and too little funding. Too many interests and too little visibility to cut through the clutter and decide to place some real bets on some of the plans. In the end, everyone gets something. Yet a few years after the CEO saying “Yes,” no one has achieved anything close to their goals. Their hockey stick plans remain a mirage.

It’s not because hockey sticks can’t become reality, but it’s because the strategy and planning process gets in the way. Some of the most valuable and profitable companies today also started with hockey stick plans. The difference between them and all the companies that didn’t realize their hockey sticks? They had a good endowment, were exposed to the right trends and geographies, and did some big moves. You can read a lot more about this in the 2018 McKinsey book Strategy Beyond the Hockey Stick. How is all this related to FP&A though?

FP&A owns the planning process—and should facilitate the strategy process

In most companies, FP&A owns the planning process, which means it’ll also get to facilitate at least part of the strategy process. However, by the time FP&A gets involved it’s often too late to shape the strategy, so FP&A resorts to cooking up some numbers based on the strategy. This means FP&A cannot “drive the right strategic choices for the company” and thereby cannot live up to its vision.

This is not just a problem for FP&A but for the company as a whole. That’s because there’s no objective party taking ownership of the strategy process. This process has a multitude of built-in problems. Here are the most common ones as defined in Strategy Beyond the Hockey Stick.

  • Annual planning
  • Getting to “yes”
  • Peanut buttering
  • Approving budgets
  • Budget inertia
  • Sandbagging
  • You are your numbers
  • Long-range planning

As you can probably imagine, these problems have FP&A written all over them—not necessarily because FP&A is causing them but because FP&A is involved in all of them. That means FP&A has a massive opportunity to impact and even transform the strategy process through a different kind of facilitation.

Exploring how FP&A can transform the strategy process

There’s a clear difference between having an average strategy and having a winning strategy (and being able to move from strategic thoughts to tactical initiatives). In economic profit terms, McKinsey quantified that companies in the 20%-80% range of performance created below $200 million in economic profit every year. Those in the top quintile created almost $500 million. The upside is significant if we can get this done right.

Over the coming weeks, we’ll explore how FP&A can lead this transformation through a series of articles:

  • Stop planning. Start traveling. Strategy is a journey
  • How do you know your plan is the best one?
  • Pick your winners and feed them big-time
  • Budgets don’t create value. Big moves do!
  • For your strategy to succeed, you must go liquid
  • Sandbags and accounting sleeves only get you into trouble
  • It’s not your numbers that make you
  • The hardest part of a long journey is taking the first step

In these articles, we’ll explore how FP&A can transform every part of the strategy process that goes wrong—and recognize when FP&A is responsible for those wrong turns by focusing on being a cost center and not thinking enough about delivering value. We must live and breathe what creates value in our company. Otherwise, we cannot be a true partner to the CFO and CEO when they take on the strategy room filled with hopeful executives trying to get their plans approved.

Are you ready to start transforming the strategy process? Do you have any good examples of how an otherwise great strategy was put to the ground because of the process? If FP&A truly wants to become a driver of the right strategic choices and boost value creation, then it must start with the strategy process.

The strategy process must be transformed. And that journey starts now.