Strategic FP&A and the Modern Business Environment

The evolution of the modern business environment, and the regular introduction of new challenges, regularly presents unique opportunities for corporate finance and FP&A teams to add value to their businesses. Over the last several years, businesses have endured myriad challenges: the extremes of near economic ruin and prosperity, regular disruption of markets and industries through technological advancement, proliferation of applications for big data and analytics, and various changes in the regulatory climate (to name a few). As the business environment has changed, so, too, have the strategic and financial needs of businesses. Directly correlated with this is the more recent evolution of the role of the CFO from controller and technician to strategist and operator. What, exactly, are corporate finance and FP&A teams doing to help their businesses respond? Let’s have a look at a few examples.

Variable Economic Growth and Volatile Market Conditions
Over the past ten years, businesses have experienced the good, the bad, and the ugly of the global economic climate. The Global Financial Crisis of 2008 began an historic period of uncertainty, oddity, and, ultimately, prosperity. Arising from the ashes was an unparalleled period of government intervention in private enterprise and easy monetary policy. Both bolstered rebounding corporate profits and the resulting ten-year (nearly) bull market in equities. And while the evolution of the role of the CFO from technician to strategist was already in place, the events of 2008 and the resulting economic and market conditions certainly accelerated its trajectory. If nothing else, the financial crisis created uncertainty and demanded a renewed sense of fiscal responsibility. Enter the CFO.

CFOs have been many companies’ logical choice to bolster fiscal responsibility and to assist in navigating continuously changing conditions. While, historically, traditional roles were focused on reporting backward-looking results and less on execution of strategy, they were quietly armed with a high-powered tool: their proximity to a company’s financial and non-financial data. When coupled with analysis and practical application, this proximity to data makes the CFO (and their FP&A team) a powerful, strategic ally to a business, especially when called upon to navigate dynamic economic and market conditions. Through preparation of financially- and strategically-sound forecasts and analyses, the CFO organization is well positioned to assist in navigating uncertainty and change.

Technological Advancement and Disruption
The pace of technological advancement in recent memory has been staggering (see Moore’s Law). There are countless new technologies that have some degree of business application. Perhaps even more staggering is the pace at which companies are adopting new technologies to augment, enhance, or automate existing business processes. Cloud computing, artificial intelligence, social media – all now play a critical role in the execution of enterprise activities. Quickly emerging are technologies like blockchain, which is likely to completely disrupt the way we think about data and transaction processing. Technologies like quantum computing are rapidly nearing viable commercial applications and will disrupt every industry with superior computing speed and power. Companies are making billions of dollars of investments into these technologies as they innovate for the future – it’s critical for any business to remain a going concern.

Where does the office of the CFO come into play here? The CFO is the presumptive arbiter of enterprise financial performance, which gives them responsibility for tasks like capital prioritization and allocation. Accordingly, it is important for the CFO to understand the relative criticality of technological adoption for their business in order that they may appropriately allocate capital to allow for adequate investment in technologies. Also, the CFO must understand the business process and resource implications of technological adoption as these ultimately inform thinking on forward-looking financial performance and subsequent capital budgeting. Lastly, the CFO’s proximity to financial and non-financial data affords the opportunity for FP&A teams to prepare meaningful analyses around the impact on the business of technological adoption and investment.

Proliferation of Big Data and Analytics
Business intelligence has always been a priority for businesses. Understanding a company’s markets, competitors, and internal strengths and weaknesses is paramount to formulating and executing business strategy. The rapid pace of change in technological capabilities has impacted the ways in which businesses interact with their customers, vendors, and competitors, a result of which has been the creation of vast amounts of business-specific data. Technological advancement has also allowed businesses to more effectively and efficiently store and analyze this data. This has created an opportunity for CFOs and FP&A teams to add value to their organizations with enhanced data analysis.

As referenced above, FP&A teams are regularly called upon to provide data and analysis on critical matters facing their business. A synthesis of business-specific financial data with volumes of non-financial data on customers, vendors, and competitors is powerful – for understanding the business implications of certain business decisions, aligning strategy and tactical matters with financial outcomes, and measuring overall business performance. In a highly robust state where precise, real-time, predictive analytics are derived in large corporate data sets, companies may achieve a competitive advantage. Having a clear strategic direction and expected outcomes, as informed by data and analytics gives business decision makers an elevated change for success. However, continuous adoption and readily available technological applications have made this type of business intelligence more prominent and, more likely than not, simply a pre-requisite for doing business. To ensure continued success of their business, CFOs must incorporate data and analytics into their regular financial management activities or risk being left behind.

Rapid Pace of Social, Economic, and Regulatory Change
Times are changing – constantly. Over the last several years we have witnessed several social, economic, and regulatory changes, all with meaningful business implications. From the proliferation of social media to the regulatory response to the 2008 financial crisis, the environment in which companies are doing business has evolved. Brexit, uncertainty in fiscal and social policy under the Trump administration…more changes are coming. Regular environmental changes create challenges in execution of strategy. They require agility, flexibility, foresight, and, ultimately, action – all of which must be informed by financial and non-financial data. Again, this presents an opportunity for the office of the CFO to make a meaningful impact on their business. As with much of the discussion above, implementation of analytics and business intelligence afford decision-makers with the tools they need to successfully navigate these types of challenges. The CFOs proximity to company-specific data make them uniquely positions to cultivate these tools and enable effective business decision making.

Is your FP&A team prepared to support effective business decision making during periods of regular change? Are your decision-makers equipped with the tools they need to navigate modern business challenges? Contact Deane Corporate Finance today to learn how we can help!