Month: Feb 2017

Why and How to Build an FP&A CoE?

By Nilly Essaides

Financial Planning and Analysis (FP&A) Centers of Excellence (CoEs) are an increasingly potent solution to a very timely challenge: How to improve the analytics and decision support capabilities of FP&A, when finance is under continued pressure to do more with less. This question is even more relevant this year. According to The Hackett Group 2017 Key Issues Study, finance’s major enterprise objective is now to help formulate strategy through delivering better analytics and reporting. That’s right up FP&A’s alley. Yet the study also found the finance budget is expected to contract by 3.8% and its headcount by 4.4%.

A Two-Part Answer.

That means FP&A must find new ways to improve the quality of its service to internal customers but keep costs down.  There are two interrelated ways it can achieve this goal:

Approach #1: It can leverage new technologies to speed up its ROI on EPM tools and improve the quality of analytics and efficiency of core processes execution. Our 2017 Key Issues Study shows finance expects digital transformation to bring about step improvement in its performance as well as significant changes in its service delivery model; although it also shows the function is way behind on its digital execution capabilities. At the same time, the study predicts big adoption jumps in technologies like cloud-based tools and predictive analytics. Wider adoption of new technologies will help FP&A improve the quality of its reporting while making its more efficient by reducing the data-to-insight cycle time.

Approach #2. Concurrently, FP&A can pull together the execution of these analytics and core processes into a central entity to help develop the talent and expertise to more efficiently and effectively serve internal customers. By pulling its resources from activities often performed piecemeal at business unit finance organizations (see image below), FP&A can reduce headcount; but more so, it can develop better expertise to improve the quality of its service.

Activities still performed at the Business Unit Level

Source: The Hackett Group 2016 BU Finance Study

What’s in a CoE?

A CoE is an organizational entity, physical or virtual, that consolidates activities requiring critical and/or specialized skills, with a focus on developing a core competency. CoEs are typically established for processes requiring knowledge-based skills that are of higher value to the function rather than commodity-type, transactional tasks that are often pulled into a global business services (GBS) entity. .

A lot of the high-value activities that are currently handled by business units (see image above) can be more effectively handled by a CoE, leveraging the analytical capabilities of a core group of experts.

If activities like forecasting and management reporting are pulled into the CoE, along with business intelligence (BI) and analytics, the CoE can reduce overall headcount. More importantly, it can free up business unit (BU) finance staff to focus on a core mission of working closely with business, developing a strong understanding of the operations and solving business problems in real time, all the while interacting with the CoE to supplement advice with sophisticated analytics.

How to Design a CoE?

FP&A teams looking to create a CoE should consider the four following steps:

  • Establish the purpose and case for a future-state CoE. Articulate why a CoE is needed to support FP&A, as well as the overall purpose of this construct in executing and delivering against finance’s strategic objectives and those of the broader enterprise; make sure to identify improvement opportunities for cost, service, value and/or use of technology.
  • Determine the scope and activities to be performed. Decide which FP&A services to offer through the CoE vs. BU-based FP&A teams. This includes evaluating the current state of FP&A and identifying the barriers prohibiting the function from delivering higher-value services. In many cases, the efforts will require a progressive build-out over time before advancing to more complex areas.
  • Align on organizational design and reporting relationships. Re-architect finance for value creation, while delivering on core planning and reporting activities in a consistent and reliable way. That means fulfilling current FP&A demands, while considering how needs differ between BUs and/or regions, as well as the role of a GBS if it exists.
  • Determine the interaction model. Articulate how the CoE will support and interact with the business, by delineating its intended role and how involved it’s going to get within its scope of activities. CoEs evolve over time as their experience and credibility grow. Depending on its starting point, CoEs may begin in a “reporter” role, and progress into an “advisor” role.
  • Define the skill set. Finally, FP&A should figure out what is the talent profile (profiles) required to staff the CoE in order to deliver on its improved service promise. It needs to begin to inventory its existing skill set to assess readiness. It then must come up with a hiring and development plan to build the capabilities to offer services to support the CoE’s defined scope and activities.

The CoE can create a center of expertise that can feed internal constituents with key analytical and core services, like forecasting and budgeting support; it reduces the need for multiple FTEs at the BU level and brings together subject matter experts and centralizes activities in one location. That model simplifies the interaction with business units, other parts of finance and senior management. It becomes a one stop shop for providing high value-add services to internal customers and the new part of the finance operating model, enabled by digital technologies.

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Source: Generation CFO LI Group

We all hate budgeting, but what can we replace it with?

By Andrew Burrows

When you look at the purpose of traditional budgeting, it’s not hard to work out that it doesn’t fulfil its purpose very well.

The shortcomings and frustrations are well documented, but if it did the job it was supposed to do, then it would just be another necessary process to improve.

Maybe LEAN could help.

Maybe RPA.

My argument in this article, however, that fundamentally traditional budgeting does not do what it’s supposed to do very well. As a concept it is not fit for purpose.

And therefore, we should find something completely different…

But what?

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Source: Generation CFO LI Group

Study Shows Four Imperatives for Finance in 2017

By Nilly Essaides

Finance is facing four major challenges this year.

1. It needs to help the organization formulate strategy by providing better analytics…

2. while continuing to confront cost pressures.

3. It needs to handle the major impact of digital transformation on its performance and service delivery model; and

4. It need to reshape its talent profile to accomplish all of these challenges.

The 2017 Hackett Group Key Issues Study reveals that finance is at a crossroads. It faces big strategic asks from the enterprise and the prospect of dramatic change from digital transformation. Yet executives report they don’t have the capabilities to deliver on those “asks” today. And what’s worse, they’re not taking any urgent steps to develop them this year. Finance organizations that fail to move quickly to build the people skills and technological infrastructure they require to deliver top services to management and business leaders will hurt their companies’ abilities to compete in a market that’s increasingly driven by disruptive innovation and focused on growth.

As organizations pivot toward growth from margin improvement, finance reports that companies are expecting it to help support strategy through improved analytics and decision support (see chart below). Certainly, finance needs to help keep enterprise costs down. But the bulk of the “asks” are around strategic themes, not cost cutting.

Top Five Most Important Enterprise Goals That Finance Must Support in 2017

Source: The Hackett Group 2017 Key Issues Study

Finance itself is facing cost cuts in the coming year. It’s expecting its budget to decline of 3.8% and a reduction in headcount of 4.4%.  It’s not surprising perhaps at the top of improvement initiatives for 2017 are efficiency related, or more of what we’ve seen in the past couple of years, i.e., moving more activities to the GBS and reducing cost. Finance does first what it knows best.

Closing the digital gap

The problem is those tried and true moves are not going to help it deliver what the enterprise needs and meet the challenges of digital transformation. And the latter are formidable. There’s almost universal agreement among study respondents that digital transformation will bring step change in finance performance and will have a significant impact on finance’s delivery model. Yet most finance executives attest they don’t have the capability to execute on these imperatives today nor are they taking meaningful steps to develop the necessary technological and talent competencies.

How to proceed?

  • Come up with a digital roadmap. Devising a roadmap came up fifth on the list of technology initiatives, after activities like master data governance and rationalising finance applications. Yet the digital roadmap is the first step finance must take if it’s going to chart its course and figure out what it needs to do next.
  • Identify critical new technologies. Adopting new technology was number six on that list of initiatives, with only 34% of respondents. New technologies are the lifeblood of digital transformation. Technologies like big data, predictive analytics, mobile, and RPA are the tools that will enable finance to win in the digital era. Our data shows that RPA is destined to grow from mainstream adoption of 3% to nearly 30% in 2-3 years. Finance teams that jump in early with get a leg up on the competition.
  • Develop new skills and competencies. Finance realizes that digital transformation and enterprise demands require new skills, but this year it’s not planning any big steps. Only 22% are planning major changes to talent development initiatives and a mere 14% plan to change their recruiting and hiring strategies. If so few finance organizations are moving ahead in these key areas, how will finance revamp its skills set and produce analytically minded, intellectually curious, tech savvy and business partnering professionals?

Finance need to take bolder and faster steps to build up these technological process and competencies if it’s going to deliver on its promise to the organization and meet the challenge of digital transformation head on. You can download the full study report below.

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Source: Generation CFO LI Group