FP&A IS FALLING SHORT OF CFO EXPECTATIONS:
BAIN’S STRATEGY TO BECOME BEST-IN-CLASS

Stephen Beam (Bain & Company)

Stephen Beam (Bain & Company)

Expert Partner
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Stephen Beam is an Expert Partner at Bain and Co. and has significant global leadership experience in multiple finance disciplines like FP&A, Treasury, IT, supply chain, to name some.

Session Summary:

Takeaway 1:
Delivering higher value to businesses with deeper expertise in financial planning and analysis (FP&A)
Key Points
  • Focus on the most important business drivers & KPIs by delivering consumer-grade experience and supporting future decision making.
  • Technology advancement from manual to automated and AI-based forecasting.
  • Alignment with the business leaders & CFOs on the sources of value creation for the future.
Takeaway 2:
Overcoming critical challenges to achieve world-class FP&A
Key Points
  • Lack of alignment or buy-in among business leaders – Understanding where the business makes money, align, work backwards to redesign, and co-pilot FP&A transformation.
  • Sticking with the traditional approach to FP&A organization – Mirror the business, move to the center of excellence & focus on both the traditional and the innovation side.
  • Persistent gaps in skills – Build new & deeper specialization and focus more on business than financial acumen.
  • Inability to adopt new ways of working – Focus on progress, not perfection. Check on disrupted business & reinvent FP&A practices.
  • Inadequate technology and data – Addressing the root cause of the existing technology before investing in a new one.
Takeaway 3:
Key pillars in building a great FP&A to become best-in-class
Key Points
  • Have a deep understanding of business strategy and value drivers.
  • Demystify numbers to enable business decisions.
  • Drive true partnership, and help businesses in driving results.
  • Leverage data and technology to drive innovation within the business.
(0:01)-Stephen Beam

So we’re going to talk about corporate finance right after lunch, always a difficult slot. Afterthis, we’ll probably get into tax. So I’m going to talk a little bit about just you know Bain as a company, and then we’re gonna jump right into kind of the importance of financial planning and analysis. I may differ my opinions, a little bit from the prior speakers in terms of the timelines and some of these transformations, and then, more importantly, we’ll get into some of thehurdles or issues that are being faced by companies trying to transform their FP&A function as a whole.

(0:37)- Stephen Beam

So a lot of times Bain and Company is known for more strategic and management consulting, we do a lot of private equity and we’re probably known for that. However, over the last, I would say 5 to 10 years we’ve started to build a much deeper expertise in terms of GNA transformations as well as performance improvement. We’re global 12,000 employees just about everywhere. And a lot of them, a lot of the data points that I’ll talk to you about come from an extensive experience both in the industry as well as with our clients across many different industries. So, that, that being said, FP&A as a whole if we just kind of step back a lot of times, and most of our clients and situations has, I would almost say devolved into a state of very much finance for the sake of finance, really focused on some of the more financial metrics versus in process, a lot of Excel files disparate systems and platforms. And many times, the talent and the folks surrounding those functions come from very specific backgrounds so not very, not a very diverse situation in terms of the historical place that FP&A is performed. You see in the left-hand slide side of the screen.

(1:59)- Stephen Beam

Not necessarily a single source of truth but more gatekeepers to information, many many metrics and KPIs, lots of Excel jockeying, you know, the focus being on long cycles of budgets forecasts and actual variance analysis. And what we’re seeing and a growing number of our clients is the evolution of FP&A into that right-hand side so the future of FP&A and I’ll get into that a little bit. But if you take away one thing from this slide, it’s that financial planning and analysis. It should be lean and mean. Right, and what I mean by that is, fewer resources, less data, fewer metrics, really focused on business drivers and outcomes with a very diverse set of experiences and backgrounds within that type of organization developing and creating what I would say is a really healthy rub and accountability structure, not just within finance to the CFO but across the businesses and across the functions. And you also notice in here that this is very much focused on fewer KPIs. It’s not a lot of times and need for more data or more metrics, it’s less it’s doing less with fewer people and adding a tremendous amount more value. And these transformations are now happening in 12 to 18 months, not three, four, or five years.

So, that, that being said, I’m going to jump in a little bit in terms of where value is created for let’s say the business leaders, versus the CFO, I won’t talk through all this, but I would say that you know, this single source of truth, right built on a really standard, And I would say, structured set of processes, first, and then data legs that then leverage you know, AI and RPA, and I talked about the process first because that’s typically where you’re going to get the best data with standard processes. The other thing that I would just mention is FP&A is serving as kind of like an early warning system to CEOs, they are by nature the interim or the fact that the CFO is evolving into the COO. When this is done right, and ultimately they’re stewards, they’re stewards of costs the stewards of transformation. And at the same time really focused on decision support and those moments that matter most in terms of risks and opportunities within the business.

(4:23)- Stephen Beam

I don’t think that this topic is very new or original. And what I mean by that is if we, when welook at polls and surveys in terms of the importance of FP&A being transformed over the last10 years, it’s the exact same. Everybody wants to do it acknowledges that it’s needed, andvery few organizations have done this successfully. And I think it’s important that when wetalk about this, we talk about, you know what are the hurdles, what are the situations and theconcerns that not just the CFOs have, but the other business leaders and functional leads,you know, these, these really break down into five critical areas that we commonly see asthe hurdle. One of them is just lack of alignment, you know, the finance function in FP&A inparticular, not being aligned to where money is being made, you know, FP&A gets aligned.A lot of times to where the finance function already is. And that’s a concern. The traditionalapproach, we don’t focus too much on it, on the historical businesses and areas of financecomplexity, not necessarily, you know where the money is made or lost. The gaps in skills,lots of CPAs are very very helpful, but within the FP&A function, in particular, you need awide and diverse background, as well as experience to do this well. And the inability to scale and that’s really, you know, leveraging technology as well as process standardization and just an aggressive style within the overall business. And then ultimately, you know, this slide says, inadequate technology and data but many times it’s just way too much. Hundreds of homegrown tools and applications disparate systems and platforms, closing decks and forecasting decks that are 50 to 100 pages long that add very little value, and quite frankly, most people don’t even read them. And so we’ll talk a little bit about some of those kinds of common hurdles.

(6:16) Stephen Beam

So there’s a poll out there right now and if you want to log in, you can. It’s kind of sort of justlays out what are your biggest areas of concern. I’ll leave it here for a minute, just as you’relooking at that, and as you’re filling it out. Most of our clients and most of my experience in industries within the FP&A a shop, we’re finding that there’s a real need to uplevel right budgets plans forecasts are at such a granular level of materiality, that they turn into situations of, of lack of trust in the process, and as a result, inability to forecast accurately. It sounds like a line that looks like alignment, as well as some of the technology and data, arejumping to the top.

(7:06)- Stephen Beam

And I’ll spend, I’ll spend more time on, on alignment. And I would also say, lack of alignmentand buy-in is also a sense of his finance close to the business and are they aligned in a waythat they can add value to make money. When you go back to real quick.So, The first challenge, lack of alignment or buy-in. I talked about making money. Now in consulting.

(7:42)Stephen Beam

And what I mean by that is, finance for the sake of findings, right, not really necessarilyfocused on the risks and opportunities for decision support, and as a result of that, youknow, there’s, there’s a, there’s a concern of whether or not that you know they’re creatingvalue or reporting out what historically happened, some, some of these steps to overcome I’lltouch on is when you have FP&A leads the overall finance or digital transformation within theorganizations, they have a benefit and an opportunity to amplify the value. And so, a goodexample would be a recent client 450 people’s worth of work in FP&A trying to forecastcouldn’t do it within 10%. And we’re seeing a day and a half with 10 to the 10 to 15 of theright metrics, you can do that across a very large complex regulated multinational and get itwithin 2% for the quarter. And so, this constant theme of up-leveling and focusing onbusiness drivers, versus, let’s say, just reporting on the balance sheet, income statement.

(8:45)Stephen Beam

The next challenge. This is the traditional approach right and this is kind of the butter wherea lot of the functions get stuck, they get very comfortable in the way things were done 5,10,15 years ago, the metrics have been the same, they haven’t adjusted, and in fact, there’s anatural kind of trend within finance folks and I’ll include myself in this. And that’s, you know,you give me more data, I’ll give you more metrics, you give me more time and I’m going totake them, I’m going to take more time. And so as a result of this traditional approach hascreated situations where the FP&A function is no longer embedded in the business, it’s kindof self-serving in terms of finance for finance, and it should really mirror right, I mean, The finance function is not built.

It’s not the goal of business, making money is, and finance should align itself to where themoney is being made.

(9:39)Stephen Beam

The other thing that I would say is it’s not a part-time gig, right, the best FP&A functions outthere are dedicated, they’re focused, they like what they do, they don’t deal with whatthey do. I mean there’s a real general ambition and curiosity and these folks. And I wouldsay that that’s a huge piece of the second challenge, centers of excellence are movinginto financial planning and analysis, whether it’s the AI centers, or if it’s RPA reportingCenters of Excellence right, a lot of master data management, as well as governancestructures start and stop with an FP&A when it’s done well and it’s done right. And I say thatif you think about if FP&A goes for measuring 150 metrics, and those get blasted acrossthe entire business, and all of a sudden they start to measure 10 or 15, or they’reclosing Decker reporting that goes from 100 pages down to three that matter, the massiveamount of capacity that’s cleared up and opened up across all the functions and significant. And so I just kind of mentioned that they’re turning into centers of excellence and accountability structures as well, right, This function is not designed to necessarily be your friend or operate in a hyper-democratic state. This function is designed to drive accountability. Right. And to have that natural friction or rub, create a little bit of tension within the organization. So people feel like they need to be accountable for the functions or their areas of the investments that they’ve been given.

(11:09)Stephen Beam

The third gaps in skill sets.What I would say it’s really hard to hire the best in this space. It’s more of an apprenticeship, right, it’s designed it’s thoughtful, there’s a rotation that happens throughout the business, whether you spend time in commercial finance, marketing, Supply Chain Finance, learning lean principles or practices right there’s a real desire for these folks to be well rounded and I will say bilingual. They’re bilingual in the business in the language of making money from a commercial and operational perspective, and their second language is finance. Right.

(9:39)- Stephen Beam

The other thing that I would say is within this type of kind of lean mean organization FP&A,you know, the biggest unlock when doing these transformations, is for finance and FP&A inparticular, to be very very prescriptive about what they’re no longer going to do, right, we areno longer going to report, ad hoc for $1,000 variance in a billion-dollar business, right, this isabout really focusing on making money again. And I’ll say since you know over the last 18months, there’s a real emphasis on cash and liquidity as well as some of these tools thatwe’re seeing your help on that. But if you don’t measure the right stuff from an FP&Aperspective or investor relations perspective, you may just be wasting some of yourresources and time and focus.

(12:35)Stephen Beam

The fourth one here that continues to jump out, is, is these new ways of working, I, I mentionedthis earlier, and I think that the first bullet, the takeaway on this page is so many times,finance, HR, marketing the headquarter functions waste a tremendous amount of time tryingto come up with a perfect transformation strategy, right, I had a client earlier this week that’srunning on FP&A transformation they have 200 projects. But, 200 projects that they’re tryingto get perfect out of the gate, and a lot of times what we’re seeing is just start right and go forit be like don’t worry about being perfect. Don’t worry about the A, like this is about gettingeligible to play sports, again, right, like you’re failing. Let’s get a B and be eligible and getback in the game to use a lot of the analogies we’re seeing here.

(13:26)- Stephen Beam

But I think that’s it, that’s probably the biggest takeaway, and do few, Just a few things rightlet’s get budgeting down to less than 30 lines less than 30 days let’s get our forecast cyclesto be, you know, more driver base more real-time rolling let’s get our closing processes downto two and three days. A tremendous amount of capabilities are unlocked. You know wementioned agile here this is just, it’s okay to break stuff, right, some of the best CFOs that dothis ethically in 12 months. Give an open door to try different things right. And some of that iseliminating more work than adding, and I keep coming back to this kind of common emittermade earlier. It is absolutely possible to deliver 10 times more value with a lot fewer peopledoing a lot less work than FP&A is probably the tip of the spear when it comes to thefinance function going through these transformations, you know, the fifth one, I put it last onpurpose, right, and I heard someone. I think someone from Genpact. I think you mentionedprocesses first technology is second, right, and I put this last because so many times thesystems are not even being utilized right you’ll see customers, you’ll see my experience inThe industry, hundreds of millions of dollars being spent on massive ERP consolidation programs or systems implementations and that’s great. It’s horrible when they’re customized out of the box, and it’s a real nightmare from an FP&A perspective to put Humpty Dumpty backtogether like every day. And so, I mentioned that you know and it’s, it’s absolutely an enablerto the transformation but it’s not the goal. I had another client recently say that, theywere going to go live on 500 bots, like that was the goal, right, let’s go put 500 bots in place.Right, and I come back to this because I think there’s a common-sense kind of lean approach the process and rationalization in terms of the KPIs and again it’s 10 to 15 KPIs, you’ve got a lean, mean closing process, you’ve got, you know, a talent within the function that has everything from Storyteller’s operational experience, lean professionals process data scientists, it’s a really healthy diverse mix of talent that does this well, and within the technology, there’s some great tech out there.

(15:48)Stephen Beam

It never works very well. When you overload it with metrics or you give it really bad data. So,so I just encourage that on this one specifically, you know there’s a lot of I mentioned earlier,master data management structures hierarchies governments KPI global definitions. A lot ofthat can sit in this FP&A space that the right with the right talent and systems in tech arereally unlocking and I’d say, unlocking capability and speed on the cycles and locking inprocess standards and allowing leaner organizations like FP&A to drive value. I’m talkingabout 100 million dollar businesses but every size of business, kind of, you know, finalthoughts here if you want to think about four key pillars.

(16:36)- Stephen Beam

These folks are strategic, right, they are aligned, ambitious, and they really want to makemoney, and avoid risk. This is not your historical, you know, just because there’s a little riskwe’re not going to do it. It’s about decision support at the end of the day, they’re masters instorytelling, not lying. What I mean by that is, they understand where the money is beingmade and lost organizationally and functionally, and as a result, they’re able to talk toinvestor relations or directly to the street, right, in situations are the board in situations wherefolks need to know how the business is doing and why it’s operating the way it is. And thenthe risks and opportunities right, these, this organization should be where you goto tounderstand not just your variance, but what drove it. The other thing that I’d say is you knowjoined at the hip, and that healthy level of tension, I won’t say stress, tension, and frictionand accountability that’s driven into, you know, the operating leaders and commercialleaders, right, these folks should be connected at the hip, but at the same time feeling likethere’s an accountability to them and through them, to the CFO that’s now operating like aCOO. And then finally, you know, open-minded and curious. This is a space that is evolvingin my opinion faster than the other areas within finance and uniquely positioned to eithercreate a lot of waste or eliminate a lot of waste as well. So just kind of sharing with you all you know these are based on hundreds of clients and 1000s of hours and hundreds of 1000s of data points and thought you would, you’d be interested in that.

And with that, I’d love to take any questions.

(18:26)- Questioner 1

So just wanted to prove your you, you mentioned that systems are unutilized, what is thereason for that.

(18:33)- Stephen Beam

Yeah so, so what I heard the question was, my statement systems are underutilized, what’sthe root driver.

Well a couple of things, I think, I think, number one it’s cultural, right whereaswithin, you know, massive implementations, or investments, folks are given this voting,They’re allowed to vote, they’re allowed to tell everyone, everywhere that they need these1000 requirements in 10,000 reports and therefore the system should be customized toprovide what I had in the past. And so, with that, you know there’s a shift to a little bit more ofa benevolent dictatorship when it comes to how these systems should be run. I stressed thebenevolent part of that. And the reason why I do is what’s best for the business is, is that is astandardized out-of-the-box SAP or Oracle or ERP or whatever you’re putting in. And I mentioned that, because as soon as you get outside of that framework, the training, teachingcoaching up-leveling, upskilling of the folks to force them into the system and to leverage thatfunctionality, it’s gone. And you get Excel, you get a lot of homegrown tools and applicationsthat evolve, and the system starts to follow that so I think a lot of times it’s cultural, and thesecond thing that I would mention is a lot of times people don’t know, they really haven’tbeen trained the right way, or they haven’t necessarily been shown how they can leverage.You know we’ve all been part of this was implementations that go live and then you neversee the team again. And I think there’s, there’s got to be that constant scaling and upleveling and coaching and mentoring of how to use it, I think, quite frankly, I think there’sother times when you’ve got the wrong people in roles, using systems that maybe they’re notreally supposed to touch right too much access too much access to data too much access tomany different disparate systems so I would say that’s, those are the two big drivers of thatSituation.

And the other place, I see another question is read.

(20:48)- Questioner 2

You mentioned a lot of internal factors and drivers that might dictate you know how the FBApractices are structured What about external factors, drivers in terms of how you report to yourlenders, you know, to your shareholders, etc, like, how do those factors play into how youknow you might be more sort of maintenance-oriented or more strategic. So just curious onthat. Yeah, I’m sorry if I didn’t mention it earlier, I mean, these drivers leverage KPIs in thebest organizations that we’re seeing, have less and less to do with finance, right, it’s more ofthe transfer function of the critical X’s driving the y’s. An example of that would be to yourpoint, higher-level metrics, whether it’s market data market share price mix volume supplychain metrics.

(21:36)- Stephen Beam

And I’ve yet to find a situation when the FP&A function says we want to take 150 metrics downto these 10 or 15, and sits down with the board or the C suite, and says, oh and by the waywe’ve already modeled the business, and this would be more accurate when we doregression testing over the last six quarters in terms of what we’ve been showing you, right,and it gives you a little bit more time to identify the risks. So when you’re measuring supplychain, or market, you have an anticipate you can anticipate shifts, whereas a lot of FP&Aorganizations are providing the balance sheet, the income statement, it’s retrospective itshistorical, and a lot of that has to do with the C suite being open-minded and I say, nimblenimble enough or accepting enough to make maybe make some changes.

Appreciate your time. Hopefully, I’ll talk to you all outside thanks.

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