The Vital FP&A Transformation Mindset

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Key Takeaways:

• Transformation helps give finance the insights needed to take its seat at the table
• Use the tools you have at hand to deliver the data that’s needed
• Transformation is not just a tool or a process but primarily a mindset of delivering value

Talking about the FP&A transformation and the overall impact of finance in the abstract is one thing, but speaking to professionals who have lived through the process sheds new light on the opportunities and challenges of change.

Paul Barnhurst is a Director of Finance, Sales Operations, and Analytics who has been through the transformation process several times in his career. He shares some fantastic insights into his experience of FP&A transformation, the vision surrounding a successful roadmap, and the people, the processes, and the technologies that have to change as part of that transformation journey. 

“I've seen at least three transformations take place,” Paul tells us, “more if you count smaller groups.” Let’s look at some of the factors that characterized each one, and the keys to success that emerge.

Centralisation vs diversification

Paul’s first experience was in a Top100 brand. “It was a huge company,” he says, “so you have a very small role. But I felt like I made a difference, and I saw the impact.” The approach to transformation was one he describes as, “let's figure it all out, let's invest all the dollars, let's see what the experts say, and we'll get there at the end.” This was possible due to the excellent financial shape of the company, a Top 100 brand with strong margins.

“They brought in a new CFO,” says Paul, “and spent millions of dollars to bring in consultants. They rolled out a huge plan about how they're going to transform the entire finance organization.” The process at scale is familiar. “A lot of it was debates about Planning,” he says. “Should they centralize it? Should they have it out in each business unit? Let's build all the key drivers. Let's centralize it and have the FP&A people be business partners, support type people.” This centralization vs. decentralization debate is a perennial theme in transformation. Although he has long moved on from that business, Paul continues to see the same discussions happening across similar organizations.

The lure of offshoring

One of the common drivers of transformation is cost reduction, This doesn’t always go well. During a prior transformation of the Top100 brand, a highly complex billing process was offshored. “It ended up being such a problem we finally brought it back in-house.,” says Paul. “The new billing team delivered $13 million for the P&L. They found this through items that had not been billed and in some cases cash sitting on a balance sheet that nobody had reconciled. I still remember [the manager of the billing department] saying, I don't want to hear people complain about the cost of my team,” he says. “We've paid for ourselves for the next few years.”

Paul experienced one transformation during his career where the business offshored too much too quickly, driven by a need to cut costs and not enough focus on business processes, with a similar result. “We ended up having to hire people back in the US to support the billing,” he says, “because we were dealing with so many billing challenges it was impacting customer relationships.”

There’s no doubt that effective offshoring can save money, but there are caveats. “You have to spend the investment upfront to make sure you have a good process,” says Paul, “and if you have good tools, you should never be sending something offshore that cannot be easily standardized. Where you're expecting to pay very little, where the cost is the driver, you had better have a standardized process.”

A complex challenge

The contrast between these and his second transformation experience could not have been greater. “If you're looking at a maturity model and our ability to deliver value, on a scale of one to five, we were probably a one or a two,” he says. However, one of the great strengths was the organization’s culture of business partnering. It was an organization that looked to finance to lead everything, giving FP&A an influential seat at the table despite a number of challenges.

“We had a planning system but overall we lacked tools, didn't have robust driver-based models, and when I started, the finance department had high employee turnover,” says Paul. “It was hard to have any kind of continuity and real processes when they had also done 50+ acquisitions over the last decade that were loosely integrated. We had the seat at the table, but we weren't providing enough value. The transformation was figuring out how to provide the value without the investment to fix all the systems that needed fixing.”

With disparate systems, limited institutional knowledge, no budget, and pressure from investors to achieve the FP&A transformation in a very short timeframe, it was a real challenge. Was it successful? Overwhelmingly. 

“It was probably one of the better experiences and one of the better transformations I've seen,” says Paul. “It was extremely challenging because the company was transforming at the same time, we were private equity held, and we went from being a holding company to a true operational company. It was also the most intense job I've ever had. I learned more than in my entire career combined, gained wonderful experiences, and felt like I made a real difference.”

Drivers of transformation success

What drove the success of the transformation of this business? Unlike the Top100 brand, there was limited money to splash on the process. What they had was a CFO who identified a problem and had a real vision for its solution. “He sat us down and explained, ‘We're not providing the support, the business can't get the answers they need from us, I realize we have a lot of data issues, I realize we have turnover. But the first thing we have to do is to improve these models we built.’” says Paul.

The response opened the floodgates to transformation. “We built very robust driver-based modeling,” he says. “We really started to understand the business.” The CFO placed Paul in charge of a particularly complex company in the group. “I wasn't a fabulous modeler,” he admits, “but I wasn't bad. I knew my way around Excel. The transformation forced us to start learning and digging into the business. We started to really understand the different products and our margins - we didn't even know what our margins were on some of our products and we didn't understand a lot of our costs.” 

Paul’s tale of the old budgetary control cycle will send shivers down the backs of every accountant who has ever experienced something similar. “People had just been doing run rate averages,” he explains. “For example, last year was $6 million, we want to grow 10%; last year this month was $450k, so this year it’ll be $490k. And then we missed by $300k. And everybody's like, what happened? Oh, there's this thing called seasonality in this business, and four and five-week months, and all kinds of things that had not been properly accounted for in the budget. So it was no wonder we ended up missing materially by the end of the year.

Paul and his team started to build models from the ground up. They learned how much a salesperson would really sell, met regularly with the product team, got to grips with the roadmaps, and defined what new revenue looked like. They modeled sales commission structures and made changes to incentivize profitable behavior. They pulled together multiple sources of data, spending days figuring out how to answer crucial questions about product focus, product margins, and customer behavior.

The depth of overall knowledge gained from the modeling process helped bring finance into the decision-making process for pricing. “I’d walk through the margins and the math,” says Paul, “but it’s really a commercial decision. I asked people to do their homework to understand the market value for the product, what the customer will bear. It was a little frightening how much finance was depended upon, but what it taught me more than anything is that finance really can help create value.”

“Often we spend millions of dollars to bring in big tools. But the reality of transformation is it starts with the mindset, the process, and getting your hands dirty”, says Paul.

“I think so many people feel that transformation is primarily a system, culture, a process,” he says. “But it really, it starts with a mindset of, I'm going to transform what's being done to provide value. If you don't change the mindset, you're just going to continue to spend billions of dollars and at the end, you have another shiny tool that sits on the desktop.”

This was the sixth article in my latest series "FP&A Transformation Talks". You can read the previous articles below.

FP&A Transformation Talks

FP&A & Strategy - A marriage made in heaven

Setting the FP&A team of the future

What roles do you have on your FP&A team?

The FP&A Transformation Process: A deep dive

While you await future articles in the series you can read my latest series "Unlocking the unfair advantage of FP&A" below.

It's time to unlock the unfair advantage of Finance

Finance professionals know how to make money

How finance drives insights from analytics

Why Finance is the all-seeing eye of the company

How Finance can leverage its unparalleled access to data

How Finance should use its seat at the table

You can read a lot more articles about FP&A, Business Partnering, and Finance Transformation below. It all start's with “Introducing The Finance Transformation Nine Box” where you set the ambition for your transformation. You should join the Finance Business Partner Forum, which is part of the Business Partnering Institute's online community.

The ultimate guide to decision-making for finance professionals (the last article in a series about the decision-making process and how Finance should impact it).

The Mindset Change Checklist For Finance Professionals (the last article in a series about the mindset change that finance and accounting professionals should make to become business partners)

It's Time To Decide If You Want To Be A Business Partner (the last article in a series about the personality traits of business partners)

All Successful Business Partners Are "Leaders" (the last article in the series about our new capability model)

Should We Keep Talking About Business Partnering? (part of a 17-article series where we deep-dive on the WHY, WHAT, and HOW of business partnering by putting it on a formula)

Your Journey To Successful Business Partnering Explained

How To Create Value Through Business Partnering

Everyone Can Adopt A Business Partnering Mindset (part of a six-article series about FP&A Business Partnering)

From Business Partner To Working Within The Business (part of an article series where I interview finance professionals about their careers in FP&A and Business Partnering)

Is Your Product Optimized For Value Creation? (part of a toolbox series where we look at what tools FP&A professionals should leverage to drive value creation)

How Business Partners Turn Analysis To Insight (part of case study series where I interview business partners about how they drive value creation using real cases)

The Future Of FP&A: Two Ways To Take The Reins

What Is The Accounting Profession Paradox?

What Defines A Finance Master?

The New Career Path For Finance Professionals

How Finance People Can Be More Successful

The CFOs Roadmap To Transforming Finance

How To Become A Finance Business Partner

Financial Analyst vs. Finance Business Partner

Finance Business Partner Is A Bullshit Job

How Business Partners Keep A Plan On Track

Anders Liu-Lindberg is the co-founder and a partner at the Business Partnering Institute and owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 10,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 67.500+ followers and 150.000+ subscribers to my blog. I am also an advisory board member at Born Capital where I help identify and grow the next big thing in #CFOTech.