The 12 Principles of Best Practice FP&A: How does it all come together for effective Financial Planning and Analysis?
Summarizing our best practice FP&A blog series, we look at how to conduct Financial Planning…
This is the 11th of a 12-part blog series appropriately called “The 12 Principles of Best Practice FP&A”. These Principles are based on global research conducted with more than 700 organizations worldwide.
Principle 11: The best performing companies develop initiatives and projects to achieve their targets
Once best performing organizations have defined their drivers and set targets for them, they establish initiatives to achieve them. Longer term targets will probably need strategic initiatives; while operational projects will deliver the nearer term results. This again underscores the theme that targets need to be accomplished with clear plans, not just wishful thinking.
For illustrative purposes, take an example from my days at Pepsi Cola International. One of the Drivers of success the company identified was Productivity. Now one quick point on Drivers, they’re probably not unique to the company. Pepsi wasn’t the only beverage company to recognize Productivity as a Driver, but what they did about it is what made all the difference.
Pepsi had set an ambitious target to double Earnings Per Share. They knew that they needed to continue to increase Revenue growth, but that wouldn’t be enough. They needed to control costs, and that’s where Productivity as a Driver of success was quickly elevated. The company projected a significant increase in sales volume but established a target of flat cost growth.
Wait, sell more volume… but at the same costs? How does that work?
The company realized productivity would not improve overnight, and wouldn‘t improve on its own. They also realized that while near term improvements could be made, “quick wins” would not get them the order of magnitude improvement they needed. Instead, they needed a bold initiative, one than would span multiple years. Enter an initiative around Total Quality Management / Continuous Improvement, and entire strategy for driving substantial improvements in productivity. Equally substantial were the investments in training, technology, and process improvement. Incentive bonuses (and a new employee stock ownership plan) were put into place to align goals up and down the organization. Long term initiatives were broken down into nearer term projects, those projects were staffed and funded, and in turn project plans were developed that detailed activities, milestones, and tasks.
To make a long-story blog-short, Pepsi achieved not only its productivity and Cost of Goods Sold targets, but the investors were rewarded with a doubling of the stock value.
This is just one illustration of course, but the point is Pepsi knew what drove success in the Beverage business, quantified it, and made selective strategic investments in what mattered most to drive their long-term success.
From a technology perspective, obviously Dashboards and Scorecards are helpful to capture and track Drivers. But budgeting and planning are equally necessary to allocate resources effectively, and forecasting necessary to answer the question “are we heading in the right direction and does it look like we’ll achieve our goals?” Pushing use of the technology deep into the organization is important for alignment and to build a shared understanding, and ease-of-use therefore becomes all important.
In the final post in The 12 Principles of Best Practice FP&A series we’ll examine the role of monitoring results and tying them to incentives.