Grassroots finance transformation

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Finance transformation has become a throwaway phrase.

It used to mean:

• Upskilling current staff

• Automating low value tasks

• Increasing high value processes

• Positioning FP&A as a value driver

But now it's phrase used to get CFOs to buy a $MM new technology.

Sure, shiny new tech will fix some problems. But it'll also create new ones.

It's a lot easier for people to sell the technology rather than get in the details and help FP&A teams truly improve their process.

I'm committed to the second one.

But when everyone is overworked while being asked to do more, it can feel like an impossible task to transform without a new technology.

However, if you give the same people a new technology, we both know what happens next… (they will give back all that additional capacity and find new ways to fill their time)

Which means real finance transformation has to happen from the bottom up.

Today we’re talking about how anybody can transform finance from any seat.

That includes you.

Let’s break down how that’s done:

Recognize your role

The CFO function is a data function at its core. The language of business is finance and the CFO is an expert at speaking that language.

Accounting organizes the data.

FP&A tells a story with the data.

We don’t directly create value for an organization. But we do drive value (indirectly) through influence.

Here’s the way we do that (I call it the FP&A Operating System):

People: since FP&A is a storytelling organization, and people tell stories to other people, the quality of your FP&A org will fall to the level of your people.

Data & Tools: imagine giving a master home builder old, rusty tools to build a high quality house. They’ll do it, but it’ll be slow and they’ll quit after.

You can either scale FP&A through data/tools or people - many choose to scale through people (which isn’t bad), but is much less efficient.

Reporting: the base of the pyramid because it covers the full company. In terms of volume, that’s where we provide the most output.

Analysis: it’s simply the act of looking at your reports, data, and tools to make observations. 

Forecasting: based on what you just observed and learned, do you expect the future to look different?

Consulting: FP&A doesn’t exist on its own - we are part of a greater business system. So telling our story requires us to communicate and consult with other areas of the business.

Recognize you’re on a journey

FP&A is one of the more predictable roles in finance (besides accounting).

And once you see The FP&A Flywheel, you can’t unsee it.

All grassroots FP&A transformations I’ve personally done (wildly reactive FP&A teams transforming to proactive, efficient, and value added) start with the FP&A Flywheel.

You must constantly reduce your tasks down to just the essentials while you add in more complex stuff so that you can drive efficiency and value at the same time.

Here’s a diagram of how that usually plays out:

More often than not, teams are doing the right stuff - they just don’t have a vision for how impactful it can/should be.

Here’s the ‘right stuff’ that leads to FP&A driving consistent value in a business:

Books close: garbage in, garbage out. You won’t have good analytics without good financial data. Ensuring accounting is correctly coding things is not our job (they should check their own work) but the consequences fall on us.

Actualize model(s) and reports: minutes/hours after books close, you should have a seamless update process that quickly pulls in data to your models and reports to give you a quick understanding of how results compare to expectations.

Variance analysis: your ability to understand what’s driving results against expectations and develop an opinion on what’s most important is the entire purpose of variance analysis.

Prioritization: once you have a view on what’s driving your results, using context you can begin to prioritize what needs further attention. This could look like a simple email to a business partner or a deep dive analysis leveraging operational data.

Root cause analysis: some variances to expectations will require you to dig a little deeper to understand why the results look the way they do.

Reforecast: based on what you see in your variance analysis and root cause analysis, you are trying to understand if it will continue. If yes, reforecast. If no, leave it. If not sure, it depends.

Executive reporting: you did a ton of great work all month - now it’s time to bring it all together and inform the executive team of the updated results and impacts.

Admin work: what sounds like the most boring is a critical step in the process. Every month we take small shortcuts, change our models without updating documentation, hardcode stuff, etc. The end of the month is your time to clean up this and/or build better stuff.

In summary:

Finance transformation must happen at the lowest level of the organization to be effective.

Sure a new technology will help, but only by teaching your team how to become more efficient and drive high-value work will you truly make a lasting impact on the business.

Read the note below if you want help doing this…

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