Achieving your expected level of success from corporate strategies is often difficult, and many strategies struggle or fail to deliver their expected ROI. FP&A and Finance teams, with the exception of high-level executives, are also commonly found to have a general low rate of involvement in creating corporate strategy. Given that FP&A teams are a key force in any corporation to calculate and meet ROI and profit goals, it should be undeniable that a higher involvement of FP&A teams would likely increase the success rates of corporate strategy.
So let’s delve into some different ways to integrate the FP&A teams to connect planning with strategy.
Assisting corporate strategy
What’s happening now?
Corporations are too commonly unable to efficiently implement and develop effective strategy within a turbulent global market. How many times have you seen cases of strategy cycles of different lengths, lodged with potential plans, in-depth analysis of financial plans integrated onto cumbersome and complex spreadsheet models? These cycles are out of touch with the strategic needs of the business worlds, create heavy workloads, and impose risks onto strategic decision makers at hand (often the CFO and upper-level management).
Spiraling
As financial processes are struggling to support resource-heavy strategies, bottlenecks are created in evaluating the ROI and potential of the strategies. Negative spirals are likely to develop in this scenario and affect strategic plans negatively, obstruct necessary course corrections, slow the agility of updates to the strategic plans and lead to lost opportunities.
Incorporating greater flexibility and dealing with spreadsheets
CFO’s and upper-level management face high levels of complexity when scenario-testing and attempting to fully understand the financial impacts of their preferred scenarios. Tracking cash flow impacts and balance sheet metrics is a demanding task, especially while sustaining the agility of adding M&A’s and their new product developments, high capital investments and operational synergies. In the beginning, using spreadsheets can be the most flexible option, but when more information builds, the processes and maintenance becomes more cumbersome and complex. In order for spreadsheets to retain high levels of flexibility the level of detail has to be minimal, which ends up with the likely loss of important information. Spreadsheets may appear to be a great option at the start, but when building a long-term or even short-term strategic plan, information piles on quickly, and so does human-error, misinformation and frustration created with spreadsheets.
Long-ranged plans and conventions of planning solutions.
Many companies have adopted the approach of padding some years to their current planning system and utilising that as strategy support. This is commonly a practical attempt to buy-time to properly coordinate strategic plans with integrated financial systems, but this is not suited towards agile scenario modelling. Conducting new projects, M&As and then linking them with scenarios is an almost impossible task due to its time-consuming and heavy-workload nature. So, when attempting to integrate strategic frameworks onto existing planning systems, “weighted average strategic plans” usually form. How this works is that the long-ranged plan you are trying to follow, ends up becoming stretched out to resemble the weighted average of the spread of projects that look the best. This weighted average ends up setting unrealistic expectations for long-ranged plan projects with no clear strategic direction. Weighted averages also are typically updated on an annual basis, or less as the uncertainty in this cycle often leads to no real strategic follow-up.
Making strategy work
In order for corporations and businesses to avoid the highlighted strategic pitfalls, strategy must be examined with alternative measures. Strategy must be adaptable and dynamic to the ever-changing nature of the market and corrected in a prompt and timely manner. Fittingly, how do we work to avoid these pitfalls and make strategy work? We can use Scenario-Based Strategy.
What and why Scenario-Based Strategy?
Scenario-Based strategy is simple, by identifying the uncertainties and the different set of realities in future scenarios, we can form strategies that account for plausible scenarios; giving space to tackle critical fallouts, and the preparation to adapt to new upcoming and potential opportunities. Strategic decisions created by management dictates the future of a business, so it is imperative that business leaders are able to effectively and efficiently evaluate an overview of updated potential strategic choices and understand the resulting financial impacts on relevant KPIs. Hence, not only should scenario thinking be adopted into strategy, but it also must be constantly refreshed, reviewed and renewed for relevancy in a market that is constantly disrupted.
How a finance organisation can navigate Scenario-Based Strategy
To hone your strategy means including strategy within current financial cycles and removing existing bottlenecks in data. Additionally, CFO’s have a crucial role in optimising the strategy process with three main tasks:
- Maintaining an informed and updated overview of the relevant strategic scenarios and their projected financial impacts on the Balance Sheet, Cash Flow, P&L and non-financial KPIs. The CFO should also be aware of the projections relating to the current core business in order to create big-picture evaluation in line with long term goals.
- Frequently review the financing options available, based on different scenarios and potential restrictions around ROI, dividends return policies, stakeholder agreements etc.
- Course-correct and update the strategy with the latest details on business performance and revise the strategic decisions in the short-term plans and actions.
By successfully managing these tasks, the finance team is able to create a solid foundation for the optimal strategic decisions to be made. Furthermore, this gives finance the ability and recognition to be an active driver of strategic processes.
Implementing working strategies with MODLR
Existing processes in strategic thinking need to be adjusted by finance teams. Strategy needs to account for everyday business and allow for strategic opportunities to be evaluated immediately as they come available. Therefore, strategy needs to be made an essential part of existing financial cycles such as budgets, reports and forecasts.
To avoid the cumbersome processes of spreadsheets and conventional planning systems, MODLR has created a range of tailored solutions that maximise the efficiency and potential of corporate strategic planning. MODLR has given many customers the flexibility and agility to evaluate strategic initiatives; and successfully relay these initiatives to their budgets and forecasts. Our solutions include Annual Budgeting, Rolling Forecasts, Cash Flows and P&L; to streamline your financial processes and enable FP&A teams to be key players in high-level strategy planning.
