This article is not about the budget process—yet it plays a leading role—but more about the strategy process and the role of budget. When we look at the strategy process, our starting point is that we want to create value.
However, once we leave the room, emphasis shifts from the great vision and the initiatives we want to take, to creating short-term plans and budgets. The process consumes so much time and resources and goes on for so long, that the ambitions from the strategy room are long forgotten once we’re done. That’s a problem because we then create less value than we intended—and to what end? So that FP&A can track variances and bang managers on the head when they’re behind? Something must change, and FP&A plays a leading role in driving this change.
If budgets don’t create value, then what does?
The answer is simple: everything you planned for in the strategy room. Or to be more precise, the big moves you planned for will create value. What’s a big move? It’s when you pull one of the 10 levers for strategic success, such as productivity improvements or dynamic allocation of resources, much harder than your competitors do. You can read more about these levers in the book Strategy Beyond the Hockey Stick. If anything, this is what your budget (or perhaps a slimmed-down version of it) should focus on.
Now let’s consider in more detail what exactly FP&A needs to do differently or needs to facilitate better.
- Build a momentum case rather than a base case to see where your current performance, including all planned initiatives, will take you.
- Analyze your past results to see what part of your value creation came from big moves your company did versus what was simply caused by industry trends.
- Perform a gap analysis between your momentum case and your strategic aspiration; for example, if your topline is currently US$30 billion and you want to make it to US$50 billion, you need to make sure you have enough initiatives planned to get you there.
- Benchmark your strategic initiatives versus your competition to ensure these are, in fact, big moves and not just enough to keep you on par with your competitors.
- Decide what moves you want to make before you start creating your budget. Budgets don’t drive value creation—big moves do!
Can you see how FP&A plays a role in all of this? There’s prep work before going into the strategy room (momentum case and analysis of past results), gap and benchmark analyses when leaving the strategy room, and the facilitation of planning the right big moves—in other words, making the right strategic choices for the company while inside the strategy room.
It’s time for FP&A to take the driver’s seat on the strategy process
This is a massive opportunity for FP&A to take the driver’s seat in the company’s strategy process. Do you see the potential? We might not be invited to do this, but who needs an invitation? All you need to do is propose what needs to change, and then roll with it. FP&A is already involved in all the key processes, so taking a proactive approach in changing them shouldn’t be too complicated.
Are you ready to take charge? If you have any concerns, now is the time to address them so we can move forward with fulfilling our vision for FP&A, and boost our company’s performance into the top quintile of all companies. That’s where value creation really starts to take off!