FP&A is Now Job 1 for CFOs. Here’s Why That’s Not Going to Change.
~ Latest from Oracle NetSuite
CFO Leadership Council is proud to align with Oracle NetSuite as a national partner. As we imagine a post-covid business world, Art Wittman, Content Director, NetSuite sheds light on what to prepare for.
As we increasingly understand how to do business in a world with COVID-19, it’s natural to speculate: Which changes will be permanent, which are temporary and where can we find new opportunities?
In our most recent quarterly survey, we asked CFOs and other business leaders how operating conditions have changed. The Top 4 most-changed business functions, in order: use of technology (55%), new business acquisition (53%), operations (47%) and lead generation (45%). These swings in how business gets done make sense as we all attempt to find success while keeping employees, customers and ourselves safe.
But will they last?
Pfizer announced on Nov. 10 that its vaccine had a 90% success rate in its latest trial. That hopeful news sent the stock market soaring, with the Dow climbing more than 800 points on the day of the announcement. But that same day, the tech-centric Nasdaq dropped more than 180 points, and Zoom stock lost nearly 20% based on speculation that we might come back into the office after all — maybe sooner than we thought. Amazon took a hit. Maybe brick and mortar will see a resurgence? Fintech company Square lost about 10% on similar concerns.
Use of tech doesn’t look quite the same when we aren’t chained to our home offices.
It might be that investors rethought what’s normal. But more likely they understood the reality of the moment, and that Zoom and Square in particular with P/E ratios hovering around 600 and 400, respectively, had gotten a scooch overvalued. Amazon, with its P/E of around 100, took a smaller hit. Alan Greenspan called it “irrational exuberance” back in the dotcom days, and it seems we still can’t help ourselves. Still, if you invested in Zoom in early January, your eightfold return on investment was cut to sevenfold — not so bad.
The virtual meeting is still a safe bet, as are continued work-from-home initiatives, increased use of e-commerce as a sales channel and the need for better insights to support scenario planning.
But our data reveals a less-obvious change that should stick long term, if only CFOs will grab the opportunity.
CFOs in our current survey were remarkably unified in one respect, with 74% saying financial planning and analysis is a significant focus; an additional 21% are paying at least some attention.
At the heart of FP&A is collecting, preparing and analyzing financial data from across the organization to provide data-driven answers to business questions, like “What are best-case, expected and worst-case scenarios?” And determining the likely outcome of the company’s current course. But CFOs also need to shed light on the use of working capital, new investment opportunities and current and projected profitability for each product or service.
What has changed is that the sort of planning and analysis happening in most smaller and midmarket companies is not like the “before-times” budgeting and subsequent FP&A process. For many, the pandemic called almost every aspect of business operations into question. In normal years, you might experiment with new products or services or new marketing techniques or new sales channels or new service or product delivery methods. Maybe, if you were in growth mode, two of these might be on the table.
This year, many companies had no option but to throw all of those balls into the air at once.
Even landing on new processes that work in the current environment won’t guarantee future results, much less a return to 2019 conditions. As a result, the FP&A process now goes on constantly, with most organizations spending a lot of time and effort to get a better view of unit economics in particular.
The good news is, all of that analysis has led most CFOs to feel upbeat about their prospects. They’re looking to invest in the business: We saw projected spending increases similar to pre-pandemic surveys.
Now, granted, that’s after a lot of cutting this year in most companies. And it’s a trend that’s unique to CFOs — other leaders are still in a bearish mindset.
Knowing your business needs investment and actually executing are two different things. As a CFO looking to bring your colleagues along, make the case that you can answer with some degree of confidence: What will normal look like for us in 2021?
How? We believe that finance departments need to make permanent their new approach to FP&A, and not because we think conditions for businesses of all stripes are likely to change on a monthly basis, as they have been. Rather, our data shows that continuous, in-depth and data-driven FP&A is something that other business leaders wanted in 2019, particularly as it relates to evaluating new strategic investments. It was finance leaders who shied away — especially in larger organizations. The chart below shows that as companies get bigger, finance leaders are less intent on finding and, presumably, evaluating growth opportunities, as part of FP&A.
It appears that as companies grow, and matters of finance and accounting get more complex, simply doing the job right becomes all consuming. So, finance leaders abdicate their role in finding strategic investments.
Running on E
Elsewhere in our survey, CFOs tell us their biggest challenge is juggling too many responsibilities. They told us the same thing last year. And next on the list in both 2019 and 2020 is managing cash flow, a stressful process in its own right.
So it’s not hard to understand the challenge for finance leads, and why they might not be looking to evaluate every new growth opportunity that comes along. And in fact, this year’s survey shows a sizable dropoff in the number of CFOs who see finance as a source for identifying strategic investments. With CFOs’ median workweeks running at slightly more than 50 hours in our survey, other priorities are sucking up available time.
The good news / bad news is that peers consistently want finance to be that adviser. In fact, regardless of company size, about 60% of leaders outside of finance say identifying strategic investments should be a priority for finance. As of September, it was the thing they wanted most from finance.
While we certainly understand that the job of the finance department, and of the CFO, is increasingly a busy one, your colleagues want your advice when evaluating strategic options. You need to figure out how to make that happen. Maybe it’s automating time-consuming tasks, maybe it’s pushing for new hires.
Whatever it takes, keep the skills your finance teams are honing now sharp and deploy them in the service of growth even as business uncertainty fades. Your newfound skills around FP&A are exactly what’s required to find and evaluate new growth opportunities. It’s just a matter of focus.
2019 saw the end of an incredibly long economic expansion. That steady growth over the course of more than a decade made business change predictable for many companies. But that kind of stability won’t be seen for some time. And smart companies won’t soon think “more of the same” is a sure bet.
Success will depend on finance teams working with other executives and line-of-business partners to constantly test old assumptions and new as we learn what from the pandemic sticks, what continues to change — and what new opportunities represent your new, better, more profitable normal.
For more than 20 years, Oracle NetSuite has helped organizations grow, scale and adapt to change. NetSuite provides a suite of cloud-based applications, which includes financials / Enterprise Resource Planning (ERP), inventory management, HR, professional services automation and omnichannel commerce, used by more than 22,000 customers in 203 countries and dependent territories.
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