Outline for today:

1. Summary of the DataFramed podcast on Data Governance

2. Data Product Concept in FP&A

3. What is a Data Governance Framework

4. Promoting Data Literacy and Skills Development

5. Creating the Conditions for Data Product thinking and Data-Driven Decision-Making

Before jumping into the text, then why do write? Because of this:

While we naturally understand that writing is a good way to share ideas with others, we under-appreciate just how much good writing helps us think about an idea ourselves. Writing is not only a means of communication, it enables us to practice reasoning. - Shane Parrish at fs.blog

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I. Summary of the DataFramed podcast on Data Governance

The DataFramed podcast featuring Saurabh Gupta from The Modern Data Company provided valuable insights into data governance and its role in today's data-centric organizations. Gupta emphasized the importance of embedding data governance early in the data lifecycle and advocated for a proactive approach to data quality management in order to leverage data for effective decision-making.

Key Insights

• Embedding Data Governance Early: Gupta stresses the importance of integrating data governance initiatives at the earliest stages of the data lifecycle to ensure data quality and compliance.

• Proactive Data Quality Management: The conversation advocates for 'shifting left' in data quality checks to identify and rectify issues promptly, enhancing overall data usability and trustworthiness.

• The Strategic Role of Data Product Managers: Highlighting the emergence of Data Product Managers, Gupta underscores their pivotal role in fostering a seamless bridge between data’s production and its strategic use, ensuring data not only meets quality standards but also aligns with organizational objectives.

• Fostering Collaboration and Standardization: The podcast points to the necessity of forging strong collaborations between different stakeholders in the data ecosystem and standardizing data governance practices across the organization to streamline operations and decision-making processes.

• Navigating the Future with Generative AI: Reflecting on the advent of generative AI, Gupta elucidates on the foundational need for a solid data governance strategy to fully leverage the potential of advanced analytics and AI technologies for informed decision-making.

• Cultivating a Culture of Continuous Improvement: Lastly, Gupta calls for an organizational culture that values continuous improvement, iterative development, and a collaborative approach to data governance, ensuring that frameworks evolve in tandem with technological advancements and business needs.

By prioritizing data governance from the get-go, fostering a culture of collaboration, and embracing the role of Data Product Managers, organizations can significantly enhance the quality, security, and usability of their data. This not only paves the way for leveraging advanced data analytics and AI but also ensures that data-driven decision-making becomes a core competency within the organization.

The insights offered by Gupta provide a valuable roadmap also for FP&A professionals and organizations at large, aiming to harness the full potential of their data assets.

II. Data Product Concept in FP&A

In the evolving landscape of Financial Planning and Analysis (FP&A), data has emerged as a critical asset that fuels strategic decision-making. As organizations increasingly rely on data-driven insights, the importance of robust data governance and a product-centric approach to data management has become more evident than ever before.

Key Concepts

1. Shifting Left: Integrating Data Quality Checks Early The concept of "shifting left" involves incorporating data quality checks at the beginning of the workflow. By identifying and rectifying data discrepancies early on, FP&A professionals can ensure the reliability of their forecasts and analyses. This proactive approach not only saves time but also establishes a foundation of trust and credibility in FP&A reporting.

2. The Emergence of Data Product Managers in FP&A: The role of Data Product Managers is becoming increasingly relevant in FP&A. These professionals act as the architects behind ensuring that financial models and analyses are based on meticulously curated and governed data. By treating data as a product—aligned with strategic objectives and subject to rigorous quality control—Data Product Managers elevate data to a structured asset that informs sound financial planning.

3. Developing a Data Governance Framework for FP&A: To navigate the complexities of data management, FP&A teams must develop and actively work with a comprehensive data governance framework. This blueprint should clearly define ownership of financial data sets, establish quality control measures, and foster a culture where data is respected and protected from manipulation. By embedding these governance principles into daily operations, FP&A professionals can enhance the accuracy and strategic value of their financial insights.

4. Collaboration: The Key to Data Excellence Achieving data excellence in FP&A is a collaborative endeavor that requires strong partnerships between IT, data management teams, and FP&A professionals. By working together to ensure data quality, accessibility, and actionability, organizations can unlock the full potential of their data assets. Celebrating quick wins, such as showcasing the benefits of a transparent and efficient data governance framework, can help rally support for these efforts.

The data product concept is transforming the way FP&A teams approach data management and decision-making. By shifting data quality checks to the beginning of the workflow, embracing the role of Data Product Managers, developing a robust data governance framework, and fostering collaboration, organizations can harness the strategic value of their data. As FP&A professionals embrace this mindset, they can drive more accurate and insightful financial planning, ultimately contributing to the organization's success in a data-driven world.

III. What is a Data Governance Framework

A Data Governance Framework serves as the backbone of an organization's data management strategy. It encompasses a set of policies, procedures, and standards that ensure data accuracy, security, and effective utilization. Understanding and implementing a robust Data Governance Framework is crucial for FP&A professionals to unlock the full potential of their data assets and drive informed decision-making.

Key Concepts

1. Ownership and Accountability: A fundamental aspect of a Data Governance Framework is assigning clear responsibilities for data management. This involves identifying data owners, stewards, and custodians, ensuring that everyone understands their roles and responsibilities. By establishing a sense of ownership and accountability, organizations can foster a culture of data stewardship and maintain data integrity.

2. Quality Control and Data Integrity: Implementing rigorous quality control measures is essential to maintain the accuracy and reliability of financial data. A Data Governance Framework should outline processes for data validation, reconciliation, and error handling. By establishing standardized data quality checks and balances, FP&A teams can ensure that their analyses and forecasts are based on trustworthy data, leading to more confident decision-making.

3. Data Security and Compliance: Safeguarding sensitive financial data is a top priority for any organization. A Data Governance Framework should incorporate robust security measures, access controls, and data protection policies. It should also address compliance with relevant legal and regulatory standards, such as GDPR or industry-specific regulations. By prioritizing data security and compliance, FP&A teams can mitigate risks and maintain the confidentiality and integrity of financial information.

4. Data Lifecycle Management: Effective data governance extends throughout the entire data lifecycle, from acquisition to retirement. A Data Governance Framework should define processes for data collection, storage, archiving, and eventual deletion. By establishing clear guidelines for data lifecycle management, organizations can optimize data storage costs, ensure data relevance, and comply with data retention policies.

5. Metadata Management and Data Lineage: Metadata management involves documenting and organizing information about data, such as its definition, source, and relationships. Data lineage, on the other hand, tracks the movement and transformation of data across systems. A Data Governance Framework should incorporate metadata management and data lineage practices to enhance data transparency, traceability, and understanding. This enables FP&A professionals to trace the origin of data, understand its context, and make informed decisions based on reliable information.

A well-designed Data Governance Framework is a critical asset for FP&A teams in today's data-driven landscape. By establishing clear ownership, implementing quality control measures, prioritizing data security and compliance, managing data throughout its lifecycle, and leveraging metadata and data lineage, organizations can unlock the true value of their financial data. Embracing a robust Data Governance Framework empowers FP&A professionals to make informed decisions, drive strategic initiatives, and contribute to the overall success of the organization.

IV. Promoting Data Literacy and Skills Development

Before we take it for granted that putting in place a new framework or process = success, we need to come back to the basics, i.e. how will our people know what to make of the new tools and expectations. So, boosting data literacy is key to empowering the team to make informed decisions and fostering a culture where data drives strategy.

Key Concepts

1. Assessing and Addressing Data Literacy Gaps: The first step in promoting data literacy is to understand the current skill levels within the FP&A team. Conducting surveys or assessments can help identify gaps in data literacy and pinpoint areas where training and development efforts should be focused. By tailoring training initiatives to meet specific needs, organizations can ensure that everyone has the foundation they need to succeed in a data-driven environment.

2. Creating Engaging Training Programs: To effectively upskill FP&A professionals, it's essential to design engaging and relevant training programs. This can involve a mix of interactive workshops, e-learning modules, community-based learning, and bite-sized tutorials. By offering a variety of learning formats, organizations can cater to different learning styles and ensure broader reach and engagement. Role-specific training, ranging from the basics of data handling to mastering analytics tools, can further enhance the relevance and applicability of the skills acquired.

3. Fostering Practical Application and Knowledge Sharing: Encouraging hands-on learning is crucial for cementing data literacy skills. By integrating real data challenges into projects, FP&A professionals can apply their newly acquired knowledge in real-world scenarios. Additionally, creating a community of practice, where data champions can mentor and inspire their peers, promotes knowledge sharing and continuous learning. This collaborative approach not only reinforces data literacy but also fosters a culture of innovation and teamwork.

4. Embedding Data Literacy in the Organizational DNA: To truly embrace data literacy, it must become an integral part of the organization's DNA. This involves making data literacy a key component of onboarding processes and continuous professional development, aligning it with career growth paths. By showcasing success stories where data-driven decisions have made a significant impact, organizations can reinforce the value of data literacy and secure buy-in from all levels of the organization.

5. Leveraging Expertise and Tools: Organizations should tap into the wealth of knowledge both within and outside their walls. Inviting experts to share insights and introducing employees to the latest trends and tools in data analytics can broaden their horizons and inspire innovation. Providing access to intuitive analytics platforms and support resources further encourages experimentation and exploration, enabling FP&A professionals to apply their data literacy skills in practice.

Promoting data literacy and skills development is a critical component of embracing data governance and the data product mindset in FP&A. By assessing and addressing data literacy gaps, creating engaging training programs, fostering practical application, embedding data literacy in the organizational DNA, and leveraging expertise and tools, organizations can empower their FP&A teams to make informed decisions and drive strategic initiatives. By investing in data literacy, organizations can unlock the full potential of their data assets and cultivate a culture of data-driven excellence.

V. Building a Culture of Data Product Thinking and Data-Driven Decision Making

As culture eats strategy and new processes for breakfast, I’ll try to put together what the current blogpost tries to promote (Data Product in FP&A) with the systems thinking and organizational learning topics I fall back on almost every time.

By weaving together insights from the DataFramed podcast on Data Governance, Peter Senge's "The Fifth Discipline," and Donella Meadows' "Thinking in Systems," we can cultivate an environment where data is not just an asset, but a catalyst for strategic decision-making and innovation.

Key Concepts

1. Adopting Systems Thinking: Systems thinking encourages us to view data as an interconnected part of our organizational ecosystem. By breaking down silos and fostering collaboration, FP&A professionals can leverage data's full potential. This holistic approach transforms data governance from a mere compliance activity into a strategic enabler, driving informed decision-making across the organization.

2. Cultivating a Shared Vision: Uniting everyone behind a common goal of harnessing data for insightful decision-making and forecasting is crucial. When data governance evolves from a mandate to a shared mission, it ignites a sense of purpose and commitment. This collective vision, echoed in the insights from our podcast guests, serves as a guiding light, empowering FP&A teams to contribute meaningfully to the organization's success.

3. Championing Personal Mastery and Team Learning: Investing in continuous data literacy and analytics skills development is key to fostering a culture of data product thinking. By empowering individuals to grow and innovate, we create an agile and informed FP&A team, ready to adapt to the ever-changing business landscape. Encouraging a growth mindset and providing opportunities for personal mastery, as emphasized by Senge, ensures that our team remains at the forefront of data-driven decision-making.

4. Promoting a Data-as-a-Product Mentality: Treating data with the same rigor as a product aligns perfectly with Meadows' systems thinking approach. By focusing on data quality, reliability, and user experience, we elevate data governance from a control mechanism to a value-creation engine. This mentality enhances the quality of financial planning and analysis outputs, driving more accurate and actionable insights.

5. Leading by Example: Leadership plays a pivotal role in modeling data-driven decision-making. When senior leaders demonstrate their commitment to data governance and leverage insights for strategic decisions, it sets a powerful precedent for the entire organization. By walking the talk, leaders can inspire a culture where data is respected, valued, and effectively utilized.

So then, embedding a culture that values data product thinking and data-driven decision making is pivotal for the success of FP&A functions. It demands an organization-wide effort, underpinned by

• systems thinking

• a shared vision for data's role in driving business value, and

• an unwavering commitment to personal and team development (not osmosis-learning).

By this cultural shift, organizations can harness their data assets more effectively, paving the way for innovation, efficiency, and a substantial competitive edge in the data-rich world of finance. Let’s put our data into use!

From fs.blog: Amateurs have a goal. Professionals have a system.

Of course there’s plenty of things happening that are good reasons why not to take the time to write, but it’s time to process some materials I’ve gone through into possibly one coherent new framework.

There’s four resources that I’ve explored in the coming weeks, which I’ll try to combine into one potential framework for generative AI adoption in FP&A. The resources were:

• The Friction Project book by Bob Sutton

• The Crux: How Leaders Become Strategists book by Richard Rumelt

• Ethan Mollick’s article on 20 February 2024 titled Strategies for an Accelerating Future

• HBR article on 26 February on Your Organization Isn’t Designed to Work with GenAI

Let’s first see what resonated with me from the recent resources and where do we end up by the end.

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Concepts from The Friction Project by Bob Sutton

In "The Friction Project," Robert I. Sutton and Huggy Rao highlight both the beneficial and detrimental forms of friction. They advocate for the role of leaders as "friction fixers," who are able to diagnose and mitigate negative friction while fostering positive friction that encourages innovation and efficiency.

The book focuses on the concept of friction within organizations, distinguishing between positive and negative friction. Positive friction is seen as a necessary and beneficial force that can stimulate creativity, foster critical thinking, and drive progress. On the other hand, negative friction is identified as a destructive force that can stifle innovation, drain resources, and lead to employee dissatisfaction. What resonated me most here was the thinking around positive friction, as the common conception seems to be that all friction is bad or that we need to minimize the friction as an overarching goal. It’s not either or, it’s a balance that should be consciously managed.

The authors emphasize the role of leaders as "friction fixers", tasked with the responsibility of identifying and managing these forces within their teams and organizations. The goal is not to eliminate all friction, but rather to strike a balance, ensuring that positive friction is harnessed for growth and negative friction is minimized to prevent harm. This delicate balance can be the difference between a thriving, productive organization and one that is stagnant and unfulfilling. And like with all “balances”, there is no one true answer. In certain environments and circumstances we need to have more of the former and at other times the latter. Organizations should be able to learn and adapt not to become dogmatic in their search for the ultimate single outcome.

One of the intriguing terminologies introduced in the book as source of friction is "jargon monoxide". This term refers to the overuse of industry-specific language or jargon, which can often act as a form of negative friction. As a summary from the discussion, jargon monoxide can create barriers to communication, hinder understanding, and ultimately slow down progress. The key takeaway was that we all should be mindful of jargon creep, call it out and strive for clear, accessible communication to ensure everyone is aligned.

Through examples and methodologies like friction maps and root cause analysis, Sutton and Rao proposed frameworks to transform organizational friction into a force for good. Emotional intelligence, open communication, and a culture of feedback were brought out as keys to fostering an environment where positive friction thrives. Leveraging friction was the final idea that stuck with me to be used to benefit both the employees as well as the broader organizational goals.

In the context of FP&A, aside from understanding how friction in the organization can be both a force for bad and good, from the perspective of FP&A itself we could think here about inefficient processes and data silos that hinder our daily work as well as decision-making. Some friction might be good to step back for a minute and think, but its more prevalent that there’s more friction than optimal in our daily interactions.

Concepts from The Crux by Richard Rumelt

In "The Crux: How Leaders Become Strategists," Richard Rumelt develops his thesis on strategic thinking from the foundational book “Good Strategy Bad Strategy”. The central premise of this new book is that effective strategists and leaders focus on challenges rather than goals. This shift in perspective allows leaders to identify and address the root causes of problems, rather than merely dealing with their symptoms or chasing after objectives.

Rumelt introduces the concept of the “crux” of a challenge (from his background and interest in climbing), which is the pivotal point where action will have the most significant impact and promises the most progress. By identifying and focusing on the crux, leaders can make strategic decisions that lead to meaningful progress and success. This approach requires a deep understanding and acknowledgement of the challenge at hand, a clear vision of the desired outcome, and the ability to make coherent and decisive actions.

Rumelt brought out a three-part strategic skill set for mastering the crux. It includes i) the ability to discern which issues are of paramount importance and which are secondary, ii) understanding the difficulties inherent in addressing these challenges, and iii) maintaining a focused approach to avoid diluting efforts across too many fronts.

These skills are critical in identifying the strategic issues that require immediate attention and devising policies and actions to overcome them. He warns against common pitfalls such as mistaking symptoms for root causes, failing to prioritize effectively, and overlooking external factors, which can detract from a strategy's effectiveness.

Moreover, Rumelt underscores the importance of a systematic approach in identifying strategic issues, advocating for strategies that include data collection, cross-functional analysis, and both external and internal evaluations. This approach is essential to formulate precise problem statements that facilitate exploring viable solutions. By understanding their strategic landscape paves the way for more informed decision-making.

Takeaways from HBR’s Your Organization Isn’t Designed to Work with GenAI

The recent article from Harvard Business Review, "Your Organization Isn’t Designed to Work with GenAI," emphasizes the need for a strategic shift in how businesses integrate generative AI (GenAI) into their operations. Here are five main takeaways for an FP&A organization:

1. Redefine GenAI Integration: Unlike traditional automation technologies, GenAI should be approached as an assistive agent that enhances human capabilities over time, demanding a reimagining of business processes for full value extraction. Also here the adage of new technology on bad processes just mean faster bad outcomes.

2. Design for Dialogue: Adopting a new paradigm where technology and humans dynamically share responsibilities, with the capacity for GenAI to act more like a coworker than a static tool. This concept resembles the ideas about needing to treat the generative AI tools as probabilistic, not deterministic solutions. With IT we have been used to getting defined outcomes for our detailed instructions, but generative AI is more about a dialogue than expecting to get a defined repeatable single answer.

3. Implement Continuous Improvement and Efficiency Gains: By fostering a symbiotic relationship between humans and GenAI, organizations can organically evolve more efficient processes, capturing and analyzing each improvement for potential future automation. Feedback loops are key. Even more than with traditional software development, the final solution starts to decay from day 0 and faster than ever. Without constant feedback and learning built to the foundations, the outcomes can become obsolete or useless pretty fast.

4. Overcome Traditional Reengineering Limitations: Traditional business process reengineering methods, which rigidly assign tasks to humans or technology, are less effective with GenAI due to its flexible and iterative nature. A bit similar to the second takeaway of designing for dialogue, the solutions are more about the how and the why, not the what.

5. Practical Application Example: The case of Jerry, a customer service model, illustrates how breaking down tasks into knowledge domains and using GenAI can lead to significant improvements in response times and operational efficiency. As users get acquainted with generative AI capabilities in their daily life, they expect the same useability from the customer service solutions enterprises give them. The tolerance for old school chatbots is getting lower by the day.

Overall, FP&A organizations can leverage these insights by e.g. adopting a Design for Dialogue approach and through this improve forecasting accuracy, enhance decision-making processes, and increase operational efficiency. Sounds good, but generic, but that’s my feeling about the current phase of development - everybody needs to try out and learn what are their actual use cases. Embrace continuous improvement and adaptability so that FP&A teams can stay ahead in a rapidly evolving business environment so that we continue to work on the most accurate and up-to-date information available.

FP&A Generative AI Adoption Strategy

Ethan Mollick’s “Strategies for an Accelerating Future” brought out the following framework “Four Questions to Ask About Your Organization” that felt like a tangible item to continue practical work on.

So how can leaders start to think about the rapidly advancing nature of AI? The first thing they should do is use it. No amount of reading and research can substitute for spending 10 hours or so with a frontier model, learning what it can do. After getting familiar, companies should think about the following four questions:

1. What useful thing you do is no longer valuable?

2. What impossible thing can you do now?

3. What can you move to a wider market or democratize?

4. What can you move upmarket or personalize?

Combining this framework with the ideas from Friction Project and The Crux, the four questions in FP&A GenAI adoption could be interpreted as:

1. What useful thing you do is no longer valuable?

In light of Sutton's focus on removing friction, FP&A teams should first identify processes that are no longer valuable due to AI's capabilities. For instance, manual data consolidation and routine financial analysis may no longer be an essential part of FP&A's identity, as AI can automate these tasks with higher efficiency and accuracy.

This step involves critically assessing which parts of the traditional FP&A workflow are rendered obsolete by AI, such as certain types of financial modeling and reporting that can now be generated more creatively and insightfully through AI tools.

One should try out what work is really replaceable in FP&A, as “generating financial reporting with AI” may sound appealing, but today seems not realistic. Perhaps automating the method of getting faster to the outcome can be facilitated by generative AI, but actual report generation as a black box cannot be taken on. Hence, think more about the non-core tasks that one needs to complete that do not provide additional value (documentation). And be mindful about what the defines the value of you as an FP&A professional.

2. What impossible thing can you do now?

Reflecting on Rumelt's focus on addressing the crux, FP&A departments should explore new possibilities unlocked by AI. This includes leveraging AI for real-time scenario analysis, predictive forecasting, which were previously unattainable due to resource and technology constraints. I do want to see what tools will get us there, but it’s not “impossible” unless it seems out of reach or imcomprehensible.

The "impossible" now becomes feasible, such as providing every FP&A analyst with the equivalent of an "infinite number of interns" for data analysis, or equipping each team member with a virtual advisor for strategic decision-making. These all do need that FP&A professional step up their game and think how they can speak to the AI tools in a human language and not be as deterministic as they’re used to in Excel or SQL.

3. What can you move to a wider market or democratize?

Mollick's question about democratization is particularly relevant for FP&A. With AI, financial insights and analytics can be made accessible across all levels of the organization, empowering decision-makers and enhancing the overall agility of the business. This could mean deploying AI tools that provide customized finance advice to different departments, thereby enabling more informed budgeting, forecasting, and investment decisions without the bottleneck of centralized FP&A teams. FP&A should not and those need not be the gatekeeper of information in the organization. Be the facilitator, not the controller.

4. What can you move upmarket or personalize?

Finally, AI allows FP&A services to be personalized and extended to more sophisticated, high-value tasks. For example, AI can help small and medium-sized enterprises (SMEs) offer financial consulting services that were once the domain of larger firms, by providing deep, personalized insights into financial health, risk management, and growth opportunities. Accounting firms can step up the value ladder. FP&A teams in larger organizations can up their game in becoming more competent in the real business understanding. Time freed up from the manual work of before can be used to upskill and think how to partner your business stakeholders better. If you don’t move upmarket, somebody else will and disrupt you. Your stakeholders will demand more from you one way or the other.

Generative AI Fundamentals for FP&A

Before going to the conclusion on the AI adoption strategy, let’s recap what are some of the main concepts that I’ve recognized from myself in generative AI are about.

Large Language Models (LLMs)

LLMs like GPT (Generative Pre-trained Transformer) have revolutionized the way we process and analyze textual data. In FP&A, LLMs can automate the generation of financial narratives, interpret complex regulatory documents, and provide summaries of financial reports. This not only speeds up the analysis process but also ensures consistency and depth in understanding financial narratives. Be concious of data privacy, therefore learn how you can get what you need directly from the LLM or what you can build with the help of LLM to get to your desired outcomes faster.

Small Language Models (SLMs)

Small language models (SLMs) are compact versions of larger AI language models, designed to offer faster processing speeds and require less computational resources for operation. They excel in specific, constrained tasks, providing efficient and effective language understanding and generation capabilities while maintaining a balance between performance and resource utilization.

As LLMs seem to get expensive quite fast when used at scale, by customizing an SLM to understand the specific financial terminology and data structure of the company, these models can produce accurate and contextually relevant reports with less cost than an LLM.

Below is an illustration of language models by date of release and the size (vertical). The small language model threshold seems to be somewhere around low double digit billion parameters with some more known SLMs being Llama 2 7B, Mistral 7B & 13B, Microsoft Phi-2 13B, Zephyr 7B.

Fine-Tuning

Fine-tuning allows organizations to tailor generative AI models to their specific needs. In the FP&A context, fine-tuning LLMs or SLMs on proprietary datasets can enhance the models' ability to understand and generate reports or forecasts that align closely with the company's financial language and metrics. This customization might at the same time require significant engineering resources, therefore a ROI remains possibly hard to assess.

Retrieval-Augmented Generation (RAG)

RAG combines the power of generative models with external knowledge bases or databases, enabling the AI to pull in relevant information when generating text. For FP&A, this means financial forecasts, risk analyses, and scenario planning can be enriched with the most current data, ensuring that reports are both comprehensive and up-to-date. However, this means that there is a database to retrieve information from, which in turn means more training cost as well as longer time to retrieval.

Retrieval-Centric Generation (RCG)

RCG focuses on generating answers or content that is directly based on retrieved documents. In FP&A, this approach can be invaluable for conducting competitor analyses, market trend reviews, or regulatory compliance checks, where answers need to be directly traceable to source materials. RCG should enable better traceability and adherence to the source materials, which may lose some of the creativity of the language model, but enables better traceability and precision.

Generative AI Use Cases in FP&A

A practical application of Generative AI in FP&A could involve the automated generation of narratives in the regular reporting. The solution can draft narrative sections of the report, summarizing performance, highlighting trends, and identifying areas of concern. Fine-tuning ensures that the AI’s output aligns with the company’s financial terminology and reporting standards. RAG and RCG elements can pull in real-time market data and competitor information, providing a rich, contextual backdrop to the analysis. This approach could both improve time-to-market as well as enhance the strategic value of FP&A outputs, enabling more informed decision-making at the executive level.

Through a thoughtful application of Generative AI technologies, FP&A departments can be the key strategic advisor that has the timely, data-driven insight supporting the organization's financial health and strategic direction.

A GenAI Adoption Strategy for FP&A

Aiming to summarize the above into one single narrative, I’ve brought out three pillars to the strategy and then a short conclusion to wrap up the ideas for today.

1. Redefining Value through AI: The initial step involves a critical examination of existing FP&A processes to identify areas where traditional approaches no longer add significant value. This introspection, inspired by Sutton's focus on mitigating negative friction, enables teams to pinpoint tasks ripe for AI-driven automation or enhancement—such as predictive analytics and real-time scenario simulations. The objective here is not to replace human effort but to elevate the strategic role of FP&A by reallocating our resources to more complex, value-adding activities.

2. Embracing the 'Impossible': Echoing Rumelt's advocacy for focusing on the crux, FP&A teams must leverage AI to unlock new capabilities and address previously insurmountable challenges. This could be about democratization of our insights across the organization, thus fostering a more inclusive and informed decision-making culture. Think about access, not a need to present. The aim is to transform FP&A from a back-office function into a strategic curator that empowers stakeholders at all levels with financial intelligence (from BI to FI?). Do we think ourselves as needing to become closer to business or should we instead find ways how business can easily become closer to finance (or will we lose our identity then).

3. Strategic Democratization and Personalization: Mollick’s framework prompts a forward-looking approach to FP&A, advocating for the expansion of services both horizontally, by making sophisticated financial analysis accessible to a broader audience within the organization, and vertically, by offering bespoke, high-value financial consultation that leverages AI's predictive and analytical capabilities. Perhaps this learning will enable both the improvement in operational efficiency as well as that FP&A's contributions are tightly aligned with the organization's overarching strategic goals.

Navigating the Path Forward

The journey towards integrating generative AI into FP&A is iterative and demands a culture that values continuous learning, experimentation, and adaptation. It requires FP&A leaders to be not just technologically adept but also visionary in their strategic outlook—capable of seeing beyond the horizon of current capabilities to imagine what could be achieved with AI as a strategic partner. Coming back to the start of the paragraph, don’t worry about finding the perfect vision, just start and learn and define the vision on the go. Generative AI does not just enhance the efficiency, but also enables stepping up the strategic value of FP&A. A culture of innovation and continuous improvement will be the key enabler in the journey.

P.S. As a parting thought, the latest news on Croq providing answers at a pace not seen so far, seems to enable overcoming one of obstacles of AI adoption (slow responses) while offering this at a relatively good cost base. When the preferred model seems to be one in one day and another the next, how should the AI adoption strategy in FP&A take these developments into account? First, just start. Second, know that you’ll have to redo what you’re doing. Third, in one year you wish you would have started one year ago.

Thanks for now, I hope to get back to merging concepts in the near future!

The structure of the FBP series that we’re concluding today is and was:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

   https://www.roosimagi.com/p/fbp-series-2-post-1-stakeholder-engagement

2. Sustainable Growth through Collaborative Financial Planning (1 December 2023)

   https://www.roosimagi.com/p/sustainable-growth-through-collaborative

3. Being Directionally Correct (today)

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Introduction

As the world and our operating environment seems to change at an exponential pace, as Finance Business Partners (FBP) the pursuit of absolute precision seems to be slowing us down and we are not able to bring the value that our business stakeholders need. That is at least my perception and seemingly the common theme in FP&A related discussions and posts in LinkedIn as of late. A more pragmatic and in my assessment a more value added approach is to be “directionally correct.”

To me this concept relates to one of my favourite themes of systems thinking, adaptability, strategic thinking, stepping out of our comfort zones. Given these themes, I have used for the current blogpost books such as Donella Meadows’ “Thinking in Systems,” “Good Strategy Bad Strategy” by Richard Rumelt, and “The Comfort Crisis” by Michael Easter. From finance operators, I’ve drawn inspiration from recent podcast episodes with Netflix ex-CFO Jim Cook, Oracle ex-CFO Jeff Epstein and CJ Gustafson of Mostly Metrics fame.

Strategic Adaptability and Navigating Constraints

To kick off on a broader note, I believe adaptability and the ability to navigate business constraints are critical skills in FBP. Fortunately on unfortunately we cannot rely as finance professionals on precision and rigid frameworks anylonger. Accounting and good data quality is yes the foundation that we work on, but as FP&A/FBP professionals we are expected to take on an agile (lower case) and responsive approach, where I propose that being directionally correct is the only way how to provide value to business as opposed to trying to attain perfect precision.

I believe that this is a shift in mindset that requires a deep(er) understanding of the interconnected nature of the business we work with while appreciating the complexity and unpredictability of market dynamics, and the ability to balance being nimble enough to react to the circumstances as well as have a solid foundation to survive the inevitable downturns. Introducing the themes further elaborated on below:

1. Embrace Systems Thinking:

   • Inspired by Donella Meadows’ systems thinking, FBPs must recognize the interconnected nature of business functions. Finance no longer works in a vacuum, but influences and is influenced by other business areas. Through this lens we take move from transactions based thinking to a strategic approach to financial planning, where the focus extends beyond precisions and elaborate modelling to a broader business impact.

2. Navigating with Feedback Loops:

   • The concept of feedback loops, both positive (reinforcing) and negative (balancing), is at the foundation in systems thinking and, by extension, in FBP. I do have to say that looking at the feedback loops at university lectures was disconcerting at first, but reading both Donella Meadows and Peter Senge made me believe in the concepts at the core. Hence, also in FBP we should see that what we do creates ripples across the business, as well as we should understand what business activities feed into each other and ultimately ripple though our financial statements. Recognizing and responding to these feedback loops enable FBPs us to know how to be directionally correct.

3. Adapting to Complexity and Change:

   • The unpredictable and complex nature of modern business environments, highlighted by Meadows, calls for a flexible approach in financial planning. Being directionally correct allows FBPs to adapt strategies as situations evolve, rather than being confined by the rigidity of precision. As a mental model (not covered further in the blogpost), as finance professionals we should understand in terms of the Cynefin framework what situation we area dealing with at present and adapt our approach accordingly. We may hope that we are dealing with complicated systems and create intricate models that will solve the questions once and for all, but more likely we are facing a complex environment where we should first probe, then sense and only then respond by understanding the emergent properties. Life of an FBP is not easy… Being adaptable in our approach and mindset enables us to navigate the volatile and evolving business landscape.

4. Identifying and Leveraging Leverage Points:

   • Systems thinking encourages the identification of leverage points within business systems – areas where small, strategic changes can yield significant impacts. For FBP, this translates to recognizing opportunities where capital allocation would bring most benefit or where our business is more sensitive than perhaps conventional wisdom would suggest so that our insights and input can profoundly influence business outcomes.

Taking on a mindset of being directionally correct in FBP is not just a theoretical ideal but a necessity both considering the exponential changes that we seem to be in as well as the value added that through this mindset we can bring.

Systems Thinking in Finance Business Partnering

Donella Meadows’ “Thinking in Systems” provides a framework that I’ve repeated in several posts also before, as I believe it to be highly relevant for Finance Business Partnering in general as well as the notion of being directionally correct. Complex systems (i.e. any organization out there) means that being precise is a futile effort for FP&A.

Trying out a slightly different approach than usual, I will reflect on how the chosen books relate to the concept of being directionally correct in FBP in the form of five themes for each book. From the systems thinking perspective at first:

1. Understanding Interconnectedness:

   • In Meadows’ systems thinking, every part of a system is connected to and influences other parts. For FBPs, this means understanding how decisions and activities in one area of business affect other areas and how they flow into financials as well as how one financial decisions cascades into downstream financial effects. Having a holistic view allows for more strategic guidance, as opposed to focusing solely on precise financial metrics.

2. Feedback Loops:

   • Systems are influenced by feedback loops – both positive (reinforcing) and negative (balancing). For an FBP, recognizing these loops means understanding what aspects might be preventing business to gain speed as well as what factors enforce eachother in potentially unexpected ways. This understanding allows FBPs to anticipate and respond to changes effectively, rather than looking at only the first order changes.

3. Dealing with Complexity and Change:

   • Meadows emphasizes that systems are complex and often change unpredictably. For FBPs, this implies that being adaptable and flexible (directionally correct) is more effective than striving for absolute precision. Business environments are dynamic, so a rigid approach to financial planning is less practical or even detrimental compared to a flexible, adaptive approach.

4. Leveraging Leverage Points:

   • In systems thinking, leverage points are places within a system where small changes can have significant impacts. For FBPs, identifying these points in can lead to more effective interventions and adjustments in support of both capital allocation as well as risk management decisions.

5. Balancing Short-term and Long-term Perspectives:

   • Systems thinking requires balancing immediate concerns with long-term outcomes. One could argue that we should be precise in the short term in order to be relevant in the long term. Being directionally correct is about long-term growth, even if it means accepting ambiguity or imprecision in non-material aspects.

Incorporating systems thinking into Finance Business Partnering encourages a shift from a narrow focus on precision to a broader perspective of being directionally correct. We should acknowledge the complexities and interconnectedness of the organizations we operate in and take on a more adaptive, strategic, and holistic approach to financial decision-making. By this we allow ourselves as FBPs to navigate the uncertainties and dynamics of modern business environments with both a calmer mind as well as achieve more effective results.

Real-World Insights: Embracing Directional Accuracy and Insight-Driven Analysis

Looking now how some finance operators have reflected on the theme, the FP&A Today podcast episode “Partnering & Chill” with Netflix’s first CFO Jim Cook offered several good concepts to think about from the perspective of being directionally correct as an FBP.

One of the most compelling insights from the episode was the concept of aiming for 85% correctness. This approach is not about accepting mediocrity, far from it. The idea is about taking conscious calculated risks and learning from the experience. The traditional pursuit of absolute accuracy can even become a hindrance in our exponentially changing business environment. By designing strategies and recommendations with an 85% success rate in mind, we take on the mindset of innovation and adaptability, using the 15% margin as a space for learning and growth. This mindset fosters a culture of continuous improvement, where each iteration or decision is a step towards greater efficiency and effectiveness - both themes that as finance professionals we adore.

Design for failure, because then you're designing for learning. As long as you're still 85% correct, you're going to be great, but do not try to be 100% and then turn that 85% to 90%. Learn from the 10% error rate, make it a 5% error rate. Strive to be five nines and you’ll never get there. Design for failure and design for course correcting. And it just opens up a realm of opportunities and realm of creativity.

Another critical insight from the podcast revolves around the real product of FP&A: the insights derived from data, not the spreadsheets or intricate models as artefacts. In a data-driven world, it’s easy to become fixated on the numbers only. However, the true value FP&As bring to the table lies in their ability to distill/simplify complex data into three or four key insights that drive business decisions. This shift in focus requires FP&As to develop a keen sense of what truly matters to the business. It’s about becoming a strategic advisor who provides clarity and direction.

In essence, these two insights of 85% success rate and the real product of FP&A from Jim Cook align perfectly with the concept of being directionally correct. It’s not about delivering exhaustive reports or intricate financial models. Instead, it’s about understanding the core needs of the business, offering insightful recommendations, and embracing the journey of continuous learning and adaptation. By focusing on the essential insights and accepting a degree of uncertainty, FBPs can contribute more effectively to the dynamic world of strategic finance.

Real-World Insights: Directional Correctness in Annual Budgeting - Learning from CJ Gustafson

Looking now into the every finance professionals favourite topic of annual budgeting, the insights from CJ Gustafson, as featured in the Role Forward podcast Breaking Down Annual Planning episode, provide fresh and down to earth perspectives on approaching budgeting. CJ Gustafson underscored in the podcast the importance of understanding the business model, setting realistic goals while tackling the challenges of planning with incomplete data and needing the ability to adapt.

Echoing the theme from Jim Cook, Gustafson stresses the importance of moving forward with about 80% of the desired information. This mindset emphasises adaptability and swift decision-making, recognizing that waiting for complete data, especially in a startup environment, is often impractical or even detrimental. The ability to make informed decisions with available data and adjust course as more information becomes available is foundational for a great FP&A/FBP professional.

I also think that people will wait until they have all the information and guess what that never shows up especially in a startup life […] you got to move with 80% of the info that you wish you had and you course correct along the way […] being able to work in that gray area I know it's not a probably not the best feeling for a Finance or accounting person who is really numbers driven

Furthermore, Gustafson underscores the significance of cross-departmental collaboration for successful budgeting. He advocates for a strategic dialogue between departments, ensuring that financial plans are not only sound but also align with the organization’s broader objectives. Alignment is another facet an FBP needs to focus on beyond the numbers. And also from numbers perspective, this collaborative approach helps in creating budgets that reflect the operational realities and strategic goals of different business units.

Supporting the philosophy of being directionally correct, Gustafson advises focusing on extracting key insights from data, rather than getting mired in the minutiae of detailed spreadsheets. He encourages finance professionals to transcend the role of data analysts to become the strategic advisors who provide actionable insights that drive business decisions.

Gustafson further emphasized embracing flexibility in the budgeting process and viewing it as a continuous learning journey. We cannot take it to heart when our perfect final model needs to be “reopened” - it wasn’t closed in the first place. He talks about the value of running experiments to identify what is important and impactful, advocating for a culture where learning from each iteration is as important as the outcomes themselves. When we go into the process with a learning mindset, as opposed to trying to be right or correct, we can let go of the disappointment of needing to run version 115. Version control is needed, but why even count the iterations?

Overall, CJ Gustafson’s insights (as interpreted by me) align perfectly with the concept of being directionally correct in the annual budgeting process. It came down to three things:

1. understanding the business model

2. making informed decisions with incomplete information, and

3. fostering a culture of strategic dialogue, insight-driven analysis, adaptability, and continuous learning.

As finance professionals we navigate the complexities of budgeting in dynamic environments, so embracing this mindset enables us to achieve a more effective, strategic and relaxed financial planning process.

Crafting the “Just-Right” Budget: Insights from Jeff Epstein

Continuing on the theme of budgeting, as one could argue that budgeting and forecasting is one of the trickiest and most contentious areas of FP&A and FBP, the next example I stumbled upon just this week: a new FP&A Today podcast with Jeff Epstein ex-CFO of Oracle, now of the Bessemer Venture Partners. The theme discussed in the podcast is covered also in an article “How CFOs Build a Goldilocks “Just-Right” Budget” from where you’ll see also quotes below. The last time I was fortunate to have a resource provided by FP&A Today the same week as writing the blogpost was during early November when writing up: FBP Series 1, Post 3 on Strategic Implications of FBP.

Going to the insights, in budgeting we can discuss having multiple iterations and learning to find the ultimate truth, but why does one make budgets in the first place? When we understand this, we can also gauge how important is it to be accurate in the particular version.

As the article states, “Finding that 'just-right' budget can be a CFO’s toughest job.” In target setting we can endlessly debate how to strike a balance between aggressive growth targets and realistic, achievable goals. Jeff Epstein proposes an excellent framework with the underlying theme of emphasizing that the most effective budgets are those that are neither overly optimistic nor excessively conservative, but rather, they hit the sweet spot – the "Goldilocks zone."

Coming back to “why do companies have budgets at all?”, as a finance business partner you need to know why you’re doing the budget, not just trying to “be precise” in your forecast. Based on the article we should think about three reasons (and not overthink it):

1. Motivate teams to achieve at their highest levels;

2. Invest resources in the highest priority projects; and

3. Protect the company if things go wrong.

Even stating 90% (or less) means that we need to embrace uncertainty and flexibility in the budgeting process. Sounds crazy? But don’t wing it. Build “a budget with probabilities in mind.” The world is full of probabilities, even though the outcomes are binary. The article differentiates the level of probability you should go for depending on the nature of the area and your own need. For instance, a 50/50 probability might be suitable for new market ventures or experimental product lines. In contrast, a higher certainty level, like 90%, is more appropriate for well-established business segments or recurring revenue streams and giving investor guidance.

For revenue, we like the Andy Grove approach: 50/50. As Grove says, there’s something about a 50/50-win rate which seems to motivate teams to achieve peak performance—the optimal balance of risk and reward.

For profit, we want to protect the company and be more conservative. 70% achievement seems about right to us. […] For many private companies, cash flow is a more important metric. In this case, use a 70% probability of achievement for cash flow.

For Wall Street guidance, a key goal is establishing and building credibility with investors. Missing published forecasts can lead to the additional cost and distraction of securities litigation. For this, we’d be even more conservative, aiming for a 90% achievement rate.

For sales quotas, in our experience, the best sales people are optimists. [...] We like to set sales quotas at a 30% achievement rate.

Absolute precision is a false ambition and works against what you need to drive your business. As an FBP you need to know why you’re running the budgeting process and give away control where being right supports your ego, but hurts the business.

Your job as an FBP comes down to aligning your stakeholders with the broader business objectives. “A budget should align with the company’s strategic goals and be grounded in what the team believes they can achieve.” Moreover, the collaborative nature of building a “just-right” budget highlights the importance of teamwork and stakeholder management. The process involves "inputs from every part of the organization," – a key aspect of systems thinking in FBP and echoed as well by CJ Gustafson as summarized above.

These insights from Jeff Epstein support the overall narrative of being directionally correct as an FBP through a practical lens. In the world of finance, being “just-right” comes down to a mindset of letting go of trying to being right in order to be adaptable, strategic, and above all, directionally correct.

The Art of Good Strategy for FBP

Coming back to more traditional resources that I deeply value, “Good Strategy Bad Strategy” by Richard Rumelt offers valuable insights that are relevant to the concept of being directionally correct in Finance Business Partnering (FBP). This book shows and discussed good vs bad strategies (well, that’s also the title), emphasizing clarity, focus, and pragmatic considerations over vague and unrealistic goals.

Using the five bullet structure for books in the current post, let’s see how the theme’s in the book resonated with the idea of being directionally correct in FBP.

1. Identifying the Kernel of Strategy:

   • Rumelt talks about the “kernel” of a good strategy, comprising a diagnosis, a guiding policy, and coherent action. In FBP, this translates to diagnosing the financial health and needs of the business, i.e. understanding your stakeholders and business logic. Based on this we can guide the (fiancial) policies to implement the coherent actions that are aligned with business goals. This approach favours directionally correctness as opposed to precision by being adaptable and focused on real issues, not only the ones you can model and measure.

2. Leverage Points:

   • Good strategy often involves finding and using leverage points where small changes can make a significant impact. In FBP, this can mean identifying areas where strategic or operational changes can significantly influence business outcomes. There are areas that we think are important and there are areas that have real impact. Being directionally correct here involves focusing on impactful financial strategies that drive value, rather than getting lost in the minutiae of precision.

3. Avoiding Fluff and Bad Strategy:

   • Rumelt warns against “fluff” – superficial restatements of the obvious presented as strategy. In FBP, this can translate into avoiding vague financial goals or initiatives that lack substance. Being directionally correct allows you to focus on setting clear, aligned, realistic financial goals that drive business outcomes, rather than pursuing disconnected broad objectives.

4. Facing the Challenge and Focusing on Strengths:

   • Good strategy acknowledges and faces challenges head-on. In FBP, this means recognizing both operational and financial challenges, constraints and developing strategies to address them. Being directionally correct requires a realistic assessment of the financial standing and crafting strategies that leverage the company’s strengths while mitigating the risks.

5. Creating a Hypothesis and Adapting:

   • Good strategy often starts with a hypothesis about a problem and a proposed solution. This hypothesis is then tested and adapted based on results. In FBP, adopting a similar approach means approaching your analytics and modelling based on hypotheses about business needs and future trends, then adapting your approach based on learning from your stakeholders, actual business performance and changing market conditions.

The principles in “Good Strategy Bad Strategy” are applicable FBP through the concepts of clear, focused, and pragmatic approach to your modelling and analytics that address real challenges and leverage organizational strengths.

Embracing Challenges to be Directionally Correct

“The Comfort Crisis” by Michael Easter presents ideas that, though primarily focused on personal development and overcoming physical and mental challenges, can be surprisingly relevant to the theme of being directionally correct in Finance Business Partnering (FBP). The book encourages stepping out of comfort zones, embracing challenges, and learning from experiences, all of which are needed to embrace the mindset of being directionally correct. When business is used to only getting from finance “correct numbers”, you will need to step outside of your comfort zone to step up to what the business needs, not what they want.

1. Stepping Out of Comfort Zones:

   • Easter advocates for pushing beyond one’s comfort zone to achieve growth. In FBP, this translates to venturing beyond traditional finance roles and embracing a more strategic, consultative position. Being directionally correct involves taking (not avoiding) calculated risks, trying out new approaches in financial planning, failing, learning and embracing innovative strategies that are outside the comfort zone of traditional finance professionals.

2. Embracing Challenges and Uncertainty:

   • The book highlights the importance of facing challenges head-on and using them as opportunities for growth. In the context of FBP, we can look at this through engaging with the complexities and uncertainties of business. Instead of striving for absolute precision in your work, FBPs should embrace being directionally correct in order to be flexible and adaptable to changing circumstances.

3. Continuous Learning and Adaptation:

   • Easter emphasizes the value of continuous learning for personal growth. Similarly, in FBP, continuous learning about the business, market trends, and finance ways or working and tech is crucial. Being directionally correct is not about having all the answers upfront but about adapting strategies based on new information and learning from the outcomes of your decisions.

4. Resilience and Mental Toughness:

   • A key theme in “The Comfort Crisis” is developing resilience and mental toughness. In FBP, this can be seen in the ability to handle the stress and pressure of making significant financial decisions, particularly in times of uncertainty. A directionally correct approach requires resilience to stay the course even when you might not get to be as precise or certain as you would like.

5. Valuing Experiences Over Material Success:

   • The book argues for the value of experiences over material success. Perhaps it’s a stretch, but to me this idea resonates with enjoying the learning and iterations for an ultimate goal rather than going for short term (material) success of nailing down the minutiae of the financial model or previous period allocations. It all comes down to trading off the short-term gains for the organization’s long-term success.

To conclude, the principles outlined in “The Comfort Crisis” resonate well with the dynamic and often “non-traditional” role of FBPs. They encourage a mindset of growth, resilience, and adaptability, essential for being comfortable in directional correctness.

Conclusion

The journey towards being directionally correct in FBP is much more than a shift in perspective—it’s a transformation in approach and methodology. Using as the basis a modified five-step process of FP&A described by Jason Hershman last week, I’ve combined the concepts in this blogpost as follows:

1. Quantifying Business Activities: As FBPs, our first step is to lay the foundation for the next steps. We need a strong foundation both quantitatively as well as through understanding how our organization works as a complex system and where are the leverage points.

2. Summarizing Information into Knowledge and Insights: When extracting actionable insights from data, we need to keep in mind what is the relevant directionally correct approach we take and not get bogged down in unneeded data points. In order to provide value, we need to distill the complexities down into meaningful financial insights that lay the groundwork to drive strategic decision-making.

3. Communicating Simply for Everyone’s Understanding: Once we have these insights, we need to communicate these clearly. When we bridge the gap with our business stakeholders by bringing out accessible information we ensure that our hardworked insights are understood and applied across the organization.

4. Aligning to a Plan: The fourth step involves building alignment between various business units as well as the finance team. It’s about creating a cohesive plan that everyone understands and is committed to, aligning individual goals with the organization’s strategic objectives.

5. Driving Outcomes Through Coordination: Finally, our role is to estimate the results of the plan and ensure coordination across the organization to drive desired outcomes. This involves proactive management of resources, continuous monitoring, and adapting our approach as needed.

By embracing the mindset of being directionally correct, we go beyond the limits of precision. Our role is about more than mere data analysis so that we can be the strategic advisors who contribute to actual business outcomes.

The journey of a Finance Business Partner is marked by continuous learning, resilience, and a focus on long-term growth over short-term gains. To provide the value that the business needs, we’ll need to step outside our comfort zones and embrace the challenges that come from stepping out of the familiar traditional finance roles. By understading how our complex organization and financial models works, what are the feedback loops and leverage points, our roles start to add long term value. Being directionally correct empowers us to deliver the strategic, adaptable, and impactful financial guidance that we want to offer our business stakeholders so that our organizations thrive.

Thank you for riding along!

A reminder again on the FBP series that has now reached the end:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

   https://www.roosimagi.com/p/fbp-series-2-post-1-stakeholder-engagement

2. Sustainable Growth through Collaborative Financial Planning (1 December 2023)

   https://www.roosimagi.com/p/sustainable-growth-through-collaborative

3. Being Directionally Correct (today)

Let’s see what comes next year! See you in January!

The structure of the FBP series that we’re close to concluding:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

   https://www.roosimagi.com/p/fbp-series-2-post-1-stakeholder-engagement

2. Sustainable Growth through Collaborative Financial Planning (today)

3. Being Directionally Correct: Navigating Business Constraints (15 December 2023)

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Introduction

Collaborative financial planning is one of the cornerstones for sustainable growth. Finance business partners are expected to step out of their traditional controlling functions to a more forward looking strategic role. It's worth repeating that the job is no longer crunching numbers; it's about layering real insights on your technical fundamentals through understanding the business and stepping out of servicing to a real partner role.

Collaborative financial planning is in essence about bringing together diverse perspectives and expertise. Here finance professionals work alongside or are embedded into various departments, understanding their needs, challenges, and aspirations, and integrating these insights into a cohesive financial picture. To be a partner, you need to understand when you need to focus on operational efficiency and when on capital allocation and to distinguish what is realistic, you need to know the business. By approaching financial planning from collaboration perspective, we ensure that the outcomes are both robust and comprehensive (that we like in finance), but also that they resonate with and support the overall strategic objectives of the organization.

One of the challenges I’ll try to shed some light on is the need to make your work (models, financial plans) scalable and adaptable. Both when your organizations evolve as well as when the uncertainties are high, our setup needs to enable adapting the financial projections to accommodate new scenarios and challenges as well as ensuring that the core fundamentals can survive when business finds opportunities to scale up. This is where the concept of scalable finance processes, as highlighted by Russ Jones, former CFO of Shopify, was of interest. In his insights shared during the podcast "Turning Finance into a True Strategic Business Partner," Jones emphasizes the importance of developing finance processes that are not only efficient and effective but also scalable to support business growth without becoming a bottleneck.

This need for scalability is mirrored also by Anders Liu-Lindberg in the podcast “Finance 5.0 - Becoming Human Again in a Fearful Age of Tech.” Liu-Lindberg approaches the planning from a more operational perspective stressing the importance of breaking down large projects into smaller, manageable segments, allowing for quicker delivery and sustained traction. We need to keep financial planning remains agile and responsive to the changing needs of the business by not making the process a monster that we lose control of.

Bringing in again systems thinking (see also previous posts), as discussed in Donella Meadows' "Thinking in Systems," the concept provides a valuable framework for finance professionals both understand the interconnected nature of business operations. This perspective enables finance professionals to see beyond the immediate as well as how our own processes are systems of their own with emergent complexities that need to be reigned in.

Role of Scalable Finance Processes

Scalability in finance is a fundamental for both ensuring business growth in general (ability to process the transactions) as well as ensuring that planning processes do not break down when organization becomes ever more complex. Russ Jones, former CFO of Shopify, underscored this in "Turning Finance into a True Strategic Business Partner," stating from his experience the need for finance professionals to take on a role of mini-CFOs (i.e. ownership of the performance of the area they support) as well as think how efficient their processes are to be the relevant partners that business expects:

Takeaway from the podcast: Thinking of oneself in FP&A as the CFO and mini CFO of the CEO of marketing can change the perception of an FP&A person and expand their thinking on improving software efficiency and delivering information faster and with more insights.

FP&A professionals need to keep in mind a strategic, holistic perspective, a mindset. We are expected to use our financial expertise for the benefit of broader business success, even to support areas such as sales and marketing, not just look at the general ledger.

Scalability does involve creating frameworks that can handle increased complexity without proportional increases in costs or resources (or time). This is achieved through thinking of algorithms, automation in every step by leveraging technological capabilities so that finance teams can focus on strategic activities.

Additionally, scalable finance processes mean being able to integrate new business models/areas/ventures swiftly into the existing finance architecture. This could involve thinking in modular terms, knowing what API based thinking can mean, balancing best of class single purpose software with what larger ERPs can provide. However, scalability is not just about technological prowess, it’s also about developing a culture within the finance team that embraces change and continuous learning. I’ve heard that nobody likes change, but it seems that change is all we have, so we can do nothing other than work with it, not against it.

Jones also highlighted the importance of providing the “so what” and “now what”, i.e. not to get caught up in being happy to have achieved a good "what” given that finance professionals need to move from providing the data to highlighting the actual business insights and proposing areas for improvement. FP&A professionals are expected to (and if not expected, need to make themselves) move beyond surface-level data presentation or even “knowledge” presentation to actionable insights based on the strategic direction the company is in.

Bringing in some ideas from a book I recently read, "Effortless" by Greg McKeown, the role of scalable finance processes can be about simplification to enable the growth. Scalable processes should be designed to make finance management easier and more intuitive, allowing us to focus on what truly matters. And we will find out what truly matters when we have the time to lift our heads from the manual work we are happy to do to “fight the fires”. By automating the processes, we can reduce the cognitive load and through this make it easier for us to manage also the increased workloads without getting overwhelmed.

In short, we need to have scalable finance processes to ensure sustainable growth. To achieve this we need both a scalable and adaptable finance tech stack as well as a culture that takes changes as a given.

The Role of a Finance Business Partner in Collaborative Planning

Finance Business Partnering (FBP) is at the core of collaborative planning. There is no need to add one more layer between FP&A and business, but FBP as a mindset is needed. FBPs need to be the translators of financial concepts and fundamentals to business. They translate financial insights into actionable steps through fostering a collaboration and creating a shared understanding. There’s always decisions to be made on operational efficiency and capital allocation. To make these decisions, shared understanding and collaboration are needed.

A great FBP possesses a deep understanding of both the financial and operational aspects of the business. This dual focus enables them to provide valuable insights that drive strategic decisions. These professionals are not just number crunchers; they are interpreters and strategists who can see the bigger picture and understand how business decisions impact the overall financial performance.

CJ Gustafson's approach to annual financial planning as taken from the recent Role Forward podcast episode “Breaking Down Annual Planning with CJ Gustafson of Mostly Metrics” illustrates how Finance Business Partners (FBP) can foster collaboration. As Gustafson outlines,

It usually starts out the CEO and the CFO upfront... then you're going to work with the department leaders for input.

This approach shows how FBPs translate business realities into financial outcomes and actionable insights. It's about moving beyond the ledger to engage, understand, and influence various business areas.

Gustafson's practice of building cross-departmental consensus and alignment is core to the concepts of collaborative planning. He emphasizes the importance of understanding each department's unique challenges and aspirations:

It's about getting into the business and asking questions, then listening to what people will tell you about the business.

This approach ensures relevant financial planning outcomes that are aligned with the business realities and strategic objectives of each business unit, thus creating a unified direction for the organization.

The effectiveness of an FBP in collaborative planning depends on their ability to communicate complex financial information in a clear and accessible manner. Whether it’s about storytelling or being able to understand the needs of their stakeholders, we come back to the ability to bring out the 'so what' and 'now what' – guiding the business through the implications of financial data and recommending actionable steps.

In line with the insights from "Turning Finance into a True Strategic Business Partner" with Russ Jones, FBPs should challenge themselves and their colleagues to delve deeper. This repeats the sentiment from previous section, but I find the concept and mindset something that needs to be repeated again and again. Understanding the “why” behind business outcomes will lead to revelations that shape more effective strategies. And then from the “why” we can get to the “so what”s and “now what”s. Taking this leap may be as far from traditional finance scope as analyzing the quality of leads in marketing so that we can find ways how to materially impact sales performance for a better financial outcome.

Whether we price our products or services in one or another way or what payment terms we offer to the customers all impact what kind of cash runway we have. Only when we collaborate and have a shared understanding can business make the decisions that improve the key metrics of the company in a sustainable way. As FBPs we need to make sure that the business activities driving growth create sustainable cash flows, as focusing on the wrong metrics or on wrong tactics may ultimately create a larger cash flow hole than what the company can survive. Finance needs to be there to enable business to grow in a sustainable way and not only count the beans and be the numbers’ police that business doesn’t believe in.

Moreover, FBPs play a crucial role in implementing and overseeing collaborative financial planning tools and processes. These tools facilitate effective communication and data sharing across departments, ensuring that everyone works towards common goals with a unified understanding of financial implications. We need to have the same easy to use tools to ensure that we discuss real business scenarios and implications as opposed to arguing most of the time about whose numbers are more correct or who has understood the definitions in one or another way. FBPs need to build up and implement the solutions that foster collaboration and make sure that the solutions are easy to use for business so that they see the gain of not maintaining any manual workarounds that they may have become accustomed to.

Bringing in also the “effortless” approach, as advocated by Greg McKeown, one can see how FBPs can enhance collaborative planning by focusing on clear, simple communication and to eliminate unnecessary complexities. FBPs should aim to make finance related concepts easily understandable and relatable for non-financial stakeholders by having transparent tooling/reporting as well as focusing on what is essential for the stakeholders. This approach should foster better collaboration and understanding between departments. FBPs should step above the details that they are comfortable with and adopt a minimalistic approach in their analyses and presentations, focusing on the most impactful data and insights. It’s not easy to distinguish what is most impactful unless you have taken the time to understand the business and what is important for your stakeholders.

In conclusion, the role of a Finance Business Partner in collaborative planning is fundamental to the success of modern businesses. By combining financial expertise with strategic acumen and effective communication, FBPs can drive meaningful changes, aligning financial planning and guide business activities for sustainable growth.

Tools and Techniques for Collaborative Planning

The effectiveness of collaborative planning largely depends on the tools and techniques utilized to facilitate communication, data sharing, and thus creating a shared information space.

Modern finance teams leverage a variety of tools to enhance collaborative planning. This is a conscious decision. For example, there is a muryad of modern cloud-based financial planning and analysis (FP&A) tools available. These tools offer near real-time data access, multi-user collaboration, and integrated forecasting capabilities. Excel model-versioning hell of v116_final_final_sent is something that we need to let go of. We feel that we are more in control when we can micromanage the smallest details, but we lose accuracy and relevance when we focus only on being precise. No model is precise, as models are only representations, not reality. And any forecast in nature can be precise. Relevant, yes, but quoting George Box from 1978:

All models are wrong, but some are useful.

It’s time to believe in what was said almost 50 years ago and make finance “modern”. Ok, back to the topic at hand.

Modern tooling allow different departments to input data, view the results and outcomes of their provided inputs, and share insights in a centralized location. This fosters transparency and collective understanding of financial implications. When business does not need to wait 5 days for a model rerun, they can understand better what is changing what and through short feedback loops, iterate their thinking. It’s a different world completely when one can go through 40 iterations as opposed to knowing that any idea will take a week to test and all new ideas will only prolong the planning cycle.

Modern data analytics tools enable (e.g. Power BI + copilot; yes, Microsoft can be cutting edge…) finance teams to delve deeper into data from multiple angles, uncovering easily trends and patterns that it’s hard to understand when relying only on your spreadsheets. To utilize the capacity that the modern tools have, finance business partners need to have high data literacy in order to be self-reliant in connecting the tools to the relevant data source, automate the flows and know what different options of even handling missing data may mean for your analytical outcomes. I personally have not understood yet how to utilize predictive analytics in FP&A context, but I hope this remarks ages like milk.

Finance will need to be proficient also in collaborative project management software, a skill and expectation that is not part of the regular finance curriculum. We need to learn from our IT or BI counterparties on how to be agile (not Agile or SAFE, maybe) in the sense of making the processes transparent and open to fast feedback loops through accountability, ensuring transparent progress tracking, dependency mapping, sending friendly automated reminders to stakeholders that have not provided their inputs as fast as some others etc. The tooling will ensure that everyone in the financial planning process is on the same page, working towards known timelines and objectives.

Aside from tooling, techniques or approaches such as regular cross-departmental meetings, scenario planning will make the planning process truly collaborative. Ongoing communication ensures alignment. The meetings will enable discussing what the financial plans really mean, what are the practical decision-making point around resource allocation, who will need what capacity to fulfil their plans, where any assumptions seem to create unexpected outcomes. Scenario planning isn’t perhaps the easiest concept when fundamentals from tooling or data maturity are not in place. However, scenario planning can reveal what business decisions increase or decrease the chances of success and what do the worst case scenarios possibly mean for the company and how to be ready to survive these for sustainable long term growth.

Incorporating the “effortless” concept now also into the tools and techniques used for collaborative financial planning means choosing solutions that simplify and clarify rather than complicate. Easier said than done, including that what normal finance person would admit that their intricate and nuanced financial model is complicating things unnecessarily? Regardless, we in finance need to select tools that offer a seamless user experience, automate mundane tasks and provide clear, actionable insights. We need to be open to giving away 20% of the control in order to gain 5x rewards. When we can take the balance of 80% modelling, 20% discussions to 20/80, we do provide more value to business than managing the intricacies we used to love. The tooling of course cannot be the legacy ERP that takes 5 years to implement with the help of consultants, it needs to be something that finance professionals themselves are able to set up and maintain.

In conclusion, the combination of advanced tools and collaboration techniques is key to successful collaborative financial planning. Finance teams can work cohesively with other departments when they have more than a hammer (think Excel) in their toolbox both from modelling tooling as well as collaborative tooling in place.

Integration of Systems Thinking in Financial Planning

In the same way, as in the last post, I want to highlight how systems thinking is fundamental to finance professionals who want to have a strategic role to play. Systems thinking enables us to see beyond the individual components/inputs/metrics of the business and understand how they interconnect and influence one another. Based on concepts in "Thinking in Systems" by Donella Meadows, systems thinking encourages finance teams to identify patterns and relationships, leading to more insightful and impactful financial planning.

Systems thinking means viewing the organization as a complex system. It involves understanding how different business units interact, how external factors impact internal processes, and how changes in one area can ripple through the entire organization. By this we can anticipate and model the potential impacts of business decisions, ensuring that we can show business how their activities result in different possible outcomes.

Moreover, systems thinking assists in identifying leverage points within the organization. These are areas where small changes can lead to significant improvements in performance or efficiency. Business cannot on their own come up with the financial connections, it’s something that finance business partners need to take on as their role. By focusing on these points, FBPs can show the “what now”’s and propose without anybody asking from us what changes in strategy or tactics can yield material and sustainable benefits.

CJ Gustafson's approach as outlined in the Role Forward podcast episode to aligning financial planning with other business functions like R&D and marketing shows the power of systems thinking in finance.

You're trying to figure out what field we're going to play next year's game on and then work with department leaders to validate what you wanted to wrap your arms around is doable.

This statement encapsulates the essence of systems thinking - understanding the interconnectedness of different business areas and their impact on financial planning.

By viewing the organization as an interconnected system, Gustafson illustrates how changes in one department move across the entire business. His approach of aligning resources and objectives across various functions is all about a more holistic and sustainable growth. This is systems thinking in action -finance is not a standalone function but an integral part of the larger organizational mechanism, driving strategic alignment.

Systems thinking also aids in navigating the complexities of modern business environments. Systems thinking means also being conscious of and managing the complexity, knowing when it’s time to allow for added complexity and when we might be starting to lose control of it. Adaptability and understanding how systems work is crucial for finance to be able to play a role in maintaining the organization's competitive edge and ensuring long-term sustainability.

The Role of Checklists in Financial Planning for Effortless Collaboration

The use of checklists in financial planning, inspired by "The Checklist Manifesto" by Atul Gawande and complemented by principles from Greg McKeown's "Effortless," is a useful concept also in financial planning. Checklists, viewed as algorithms, simplify complex financial processes and significantly streamline collaboration for Finance Business Partners (FBPs). Aside from the regular automation or checklist-based validation controls, I bet it’s easier for finance professionals to use checklists for the “soft” skills. By this I mean to be able to take into account the needs of their less-technical or less-finance-savvy counterparties through algorithms rather than trying to conjure their economic intelligence capacities every time from scratch (naturally).

Algorithmic checklists to foster effortless communication can provide a structured approach to interacting with various departments, ensuring that all necessary information is conveyed clearly and systematically tailored to the understanding of your stakeholders. Checklists can act as a communication framework, detailing key points to be discussed, questions to be asked, and insights to be shared. Such checklists, when ensured to prepare for the meetings (including setting the agendas) ensure that collaboration is productive and smooth for all involved.

An example of a communication-focused checklist for FBPs setting up a meeting may include:

1. Context Setting: Briefly outline the purpose of the meeting or discussion.

2. Data Sharing: Share relevant data and insights.

3. Key Questions: List the questions to discuss the challenges at hand.

4. Strategic Alignment: Discuss how the current plans align with organizational objectives.

5. Feedback and Insights: Encourage feedback on financial plans and provide strategic financial advice. When feedback is not asked, it is usually not shared or just the loudest voices have a say.

6. Next Steps and Follow-Ups: Define actions to be taken post-discussion. And then make sure you followup.

By employing such checklists, FBPs can ensure that their interactions are not only productive but also less burdensome for both themselves and their counterparts. Clarity may feel daunting as who is finance to demand accountability from business and stating the plan exposes you to critique on the plan (no plan means often no critique, just grumbling about business as usual).

To sum up, integrating checklists as algorithms for effortless communication into financial planning elevates the role of FBPs. Checklists simplify complex interactions, ensuring that financial outcomes are effectively discussed and stakeholders are aligned between themselves and with finance. Checklists can transform financial planning from cumbersome ordeals to clear, concise, and impactful interactions that contribute to the sustainable growth of the organization.

Training and Development for Collaborative Planning

Training and development play a crucial role in equipping finance professionals with the necessary skills and knowledge for effective collaborative planning. Setting up expectations on competences and iterating on these when the landscape evolves is key. As change is the only constant, continuous learning is key to staying relevant as a finance professional facilitating business growth.

For collaborative planning to be successful, finance teams need a strong foundation in various areas including financial analysis, data literacy, and strategic thinking. However, the need extends beyond these technical skills. Training programs should also focus on developing “soft” skills such as communication, negotiation, and leadership, which for finance professionals are likely harder than the “hard” skills. Paradoxes. Soft skills are essential to effectively engage stakeholders, understand their perspectives, and drive alignment across the organization.

One effective approach to training is having workshops that focus on specific aspects of collaborative planning. These sessions can cover the fundamental topics of advanced financial modeling, data analytics, visualization best practices, or how to conduct scenario planning. On the soft skills side, workshops can also be dedicated to improving interpersonal skills, such as effective communication techniques or strategies for influencing and persuading others.

Additionally, cross-departmental training sessions and even rotation can be highly beneficial. Maybe not even training, but working alongside / being embedded into the business side can be a tool to use. Business training sessions allow finance professionals to gain insights into the operations, take on another perspective and understand the challenges of different departments within the organization. Finance is said to have a 360 degree view of business, so understanding what we’re seeing is invaluable in aligning financial planning with the objectives and needs of the organization.

Aside from the workshops, organizations should encourage finance professionals to pursue continuous professional development through certifications and courses in relevant fields. Individual asynchronous learning remains an effective approach. Certifications allow for attaining common skills level and practices to ensure the fundamentals. Furthermore, certification bodies do strive to keep their programs up to date and relevant, including that CFA Institute has incorporate Python into the curriculum.

In conclusion, effective training and development with a consistent and structured approach are key to empowering finance professionals to be able to conduct collaborative planning. Changing expectations mean that without training noone is really sure what is expected of them and engaging in discussions around competences and training keeps the organization on the same page also regarding expectations on FBPs.

Conclusion

Concluding today’s thinking on "Sustainable Growth through Collaborative Financial Planning," I continue to believe that the modern finance professional's role is pivotal in enabling sustainable growth. As we move beyond traditional number crunching, the focus is on understanding how business decisions flow into financial outcomes and having scalable and adaptable planning processes that support this work.

Finance Business Partners (FBPs) are central to collaborative planning. They translate financial insights into actionable business strategies, balancing operational efficiency with capital allocation to meet organizational objectives. This transition from servicing to partnering includes the ability to go from the “what” to “so what” and “then what” based on understanding business needs, fostering a shared understanding, and aligning the business stakeholders behind a common strategy.

I come back again to systems thinking, which enables finance professionals to grasp feedback loops, managing complexity and the interconnected nature of business and finance. This holistic view aids in identifying areas for efficiency and strategic improvements, essential for sustainable growth.

Effective use of checklists, as inspired by "The Checklist Manifesto," streamlines not just financial modelling (validation rules), but also collaboration during the planning cycle. This systematic approach ensures clarity in financial planning and making the complex interactions more manageable.

We do not become good at collaborative planning without conscious efforts. Development of both technical and soft skills is needed. By having both the needed hard and soft skills in our toolkit, we can aligning financial planning with business strategy and drive sustainable growth. We can harness both our data-first skills, modern collaborative tech stack for real insights and aligned views across the business to discuss what really matters.

By engaging in collaborative planning we ensure sustainable growth of the companies we have decided to dedicate our work to.

A thank you and a reminder on the series structure. Looking forward to the concluding post!

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

   https://www.roosimagi.com/p/fbp-series-2-post-1-stakeholder-engagement

2. Sustainable Growth through Collaborative Financial Planning (today)

3. Being Directionally Correct: Navigating Business Constraints (15 December 2023)

Before going to today’s blogpost, a reminder on the structure of the FBP series:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment (today)

2. Sustainable Growth through Collaborative Financial Planning (1 December 2023)

3. Being Directionally Correct: Navigating Business Constraints

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1. Introduction: The Evolving Landscape of Strategic Finance

The world of finance is undergoing rapid change, characterized by its shift away from traditional roles. In this modern era, finance professionals are no longer viewed merely as number jockeys or scorekeepers. Instead, they stand at the forefront of strategic decision-making, playing a pivotal role in steering organizations towards sustainable growth and innovation.

Earlier this week Pigment released their topical research report “The Office of the CFO in 2024.” The report highlights that 64% of finance leaders feel the pressure to evolve their role beyond number crunching to be more dynamic, forward-thinking, integrated with business strategy:

Finance leaders are clearly being asked to take on more work. They are now expected to be a part of key business initiatives, whether that be mergers and acquisitions, or sustainability responsibilities.

In this ever-evolving landscape, it is paramount for finance professionals to adapt to these differing expectations regarding their role. Achieving this means equipping themselves with the tools, insights, and strategies necessary to maintain the agility, precision, and forward-thinking approach required in today’s complex financial ecosystem.

Central to the concept on finance transformation and unlocking business value is stakeholder engagement. Finance professionals need to be proactive partners and strategists. They are the few in any organization that have a 360 degree view of the business and are equipped to act as the bridge between an organization's vision and its operational reality, aligning various stakeholders and interest to drive collective success.

In today’s post I’ll explore the various angles of stakeholder engagement in this new era of strategic finance. I’ll utilize resources such as the ”Elevating Finance Business Partnerships: Unlocking Their Potential” and “Finance 5.0 - Becoming Human Again in a Fearful Age of Tech” podcasts as well as books from ”Reinventing Organizations” by Frederic Laloux to ”Thinking in Systems” by Donella Meadows, to examine how finance professionals can effectively navigate the new paradigm.

Let’s see how the principles of systems thinking, agile methodologies, and a human-centric approach are reshaping the finance function, making it more responsive, innovative, and aligned with broader business goals. Sounds good, doesn’t it?

I hope by the end you’ll see better how stakeholder engagement is at the core of shaping the future of finance, and how embracing this role we can unlock business growth through strategic alignment.

2. The Agile FP&A: From Reactive to Proactive

The FP&A transformation is underscored in the Pigment’s “The Office of the CFO in 2024" report, illustrating a fundamental shift towards agility and strategic partnership.

Adding another resource, the “Elevating Finance Business Partnerships: Unlocking Their Potential“ podcast points at the growing need for finance teams to anticipate business needs, drive strategy, and influence outcomes proactively. This change is not just about speed and responsiveness; it's about taking on a role of solving business problems.

Proactiveness demands an FP&A function that is agile, one that can adapt to changing business landscapes and needs. As proactiveness is as a buzzword as any, then think are you bringing to the table topics and new angles without being specifically asked to do so?

The Elevating Finance podcast emphasizes the importance of building strong relationships across different business units, understanding the nuances of each department, and leveraging this knowledge to influence decision-making. By this FP&A transforms itself from a support function into a strategic partner, where their insights and analyses directly impact business outcomes.

Moreover, the adoption of new technologies and data analytics tools plays a critical role in this transition. By harnessing these tools, FP&A teams can provide more accurate forecasts, deeper analytical insights, and more effective scenario planning, all of which are essential in a rapidly evolving business environment.

In conclusion, the shift towards an agile and proactive FP&A is not just a trend; it's a strategic imperative. In order to be a real partner and not just the scorekeepers, FP&A professionals need to take a proactive stance and think of themselves as strategic partners. This chapter in finance's evolution is about enabling FP&A teams to be ahead of the curve, driving the business forward rather than merely scrambling to keep up.

3. Systems Thinking in Strategic Finance

In an era where finance is rapidly evolving, embracing Systems Thinking offers a powerful framework for finance professionals to adopt a proactive, agile stance and position themselves as strategic partners. Systems Thinking, as detailed in “The Fifth Discipline” by Peter Senge and “Thinking in Systems“ by Donella Meadows, enables a deeper understanding of the complex dynamics within organizations, moving beyond mere number reporting.

Systems Thinking involves viewing problems and solutions in the context of the whole system, recognizing the interconnections and interdependencies of various business functions. This holistic view is crucial for finance professionals to understand how actions in one area can affect the whole system, leading to more effective decision-making and strategy formulation. Taking on a systems thinking mindset, finance professionals are able to step outside the traditional backward looking stance.

Drawing insights from “The Fifth Discipline,” Systems Thinking encourages finance professionals to look beyond isolated incidents and understand underlying patterns within the organization. This perspective is essential for finance teams to anticipate the broader implications of financial decisions and align their strategies with the organization's overall objectives.

“Thinking in Systems“ further emphasizes the importance of recognizing and influencing systemic structures to achieve desired outcomes. By applying these principles, finance teams can better comprehend how changes in one part of the business impact the entire organization, thereby enhancing their ability to engage stakeholders effectively and drive strategic value.

The role of Systems Thinking in stakeholder engagement is also highlighted in the “Elevating Finance Business Partnerships: Unlocking Their Potential“ podcast. Here, the focus is on taking the time for relationship building in order to understand the broader business implications to connect financial metrics to the real outcomes. Systems Thinking enables finance professionals to go beyond surface-level analysis and integrate financial insights with broader business strategies.

Adopting Systems Thinking in finance is not just about problem-solving; it's about fostering a culture of holistic understanding and strategic foresight. It encourages finance professionals to view their role within the larger context of the organization, understanding how their decisions fit into and impact the overall system.

In summary, Systems Thinking opens up a world of possibilities for finance professionals to innovate and strategically align their functions with organizational goals. By moving beyond conventional wisdom and understanding complex organizational dynamics, finance professionals can provide solutions that are not only effective but also integral to the organization's success and its stakeholders’ objectives.

4. Data Literacy and Digital Transformation

In order to stay on top of the rapid developments, data literacy is a cornerstone skill. Technological skills are at the foundation on top of which to be able to offer the value adding insights to business. Without foundational skills, finance professional have neither the time nor the capacity to bring out the insights.

Data literacy, in its essence, is the ability to read, understand, create, and communicate data as information. As we have more and more data flowing in and made available, the ability to effectively interpret and leverage this data is crucial. Finance professionals who are adept at data literacy can transform raw data into actionable insights, shape the data for their benefit, driving strategic decisions based on a deeper understanding of business.

The digital transformation (and it’s still a transformation, not a status quo by any means) in finance is not just about adopting new technologies; it's about fundamentally rethinking how these technologies can enhance financial analysis, forecasting, and strategic planning. Modern tools can unlock finance potential by enabling faster turnaround times, more accurate predictions, (financial) risk understanding, and scenario planning. However, the effectiveness of these tools hinges on the data literacy of those who wield them and their capacity to understand what can be fixed with better tools and where we need to change the underlying processes.

The “Finance 5.0“ podcast brought an additional dimension to this conversation, focusing on the human aspect in the age of technology. It emphasizes that while technology is a powerful enabler, the real value lies in how finance professionals use these tools to generate insights and guide business strategy. This human-centric approach in finance 5.0 aligns perfectly with the need for data literacy, as it places finance professionals at the center of technological adoption, ensuring that these tools are used in a way that is strategic, insightful, and aligned with business goals.

However, as the Pigment research indicates, we both

53% stating outright that they do not have the requisite tools needed to conduct long-term growth planning.

while there is a clear focus to integrate digital tools into finance functions. This integration requires finance teams not only to be comfortable with technology but to be proficient in translating data into meaningful narratives. Data storytelling is invaluable in stakeholder engagement, where financial insights need to be communicated clearly and compellingly to inform decisions across the organization. Finance cannot say that “here are the numbers, we are neutral”. Finance needs to use the tools they have at hand and the data storytelling skills they can learn to take a real value adding stance in their business interactions.

In conclusion, the path to digital transformation in finance is paved with data. As finance professionals enhance their data literacy, including not forgetting the data storytelling step, they equip themselves to play a more pivotal role in driving business strategy and innovation.

5. Automation for Strategic Advantage

Jumping from data literacy to the tools needed, integration of automation into finance functions is more than a trend; it's a strategic transformation reshaping the function.

“The Office of the CFO in 2024“ report highlights how automation is rapidly becoming a staple in finance, not just for efficiency but as a key driver of strategic value:

While finance teams are being asked to take on more than ever, their
resources are not increasing. Striking the balance between automation and an organization’s most important asset — its people — is key for the future of finance.

The concept of “doing more with less” is not about burdening an already stretched workforce. It’s about amplifying human capabilities with the power of automation, empowering everyone to propel the business forward.

Automation in finance goes beyond simplifying repetitive tasks. It's about redefining the role of finance professionals, freeing them from the confines of traditional, time-consuming processes, and empowering them to focus on higher-value activities. By automating routine tasks like data entry, report generation, and basic analysis, finance teams can allocate more time and resources to strategic analysis, business forecasting, and proactive advisory roles.

The insights from the “Finance 5.0“ podcast further illuminate this transformation. The podcast discusses how the integration of technology and automation in finance is not just about operational efficiency but about creating a foundation for strategic growth and innovation. It emphasizes the importance of understanding the potential of these technologies and using them to not only automate existing processes but to reimagine them entirely.

Moreover, automation presents an opportunity for finance professionals to enhance their skill sets, focusing on areas such as strategic thinking, data interpretation, and business acumen. In this way, automation is not replacing the finance professional but elevating their role, allowing them to become more integral to business strategy and decision-making. By embracing automation, finance teams can leverage technology not just for operational efficiency but as a tool for strategic advantage, driving innovation and business growth.

6. Navigating Business Model Evolution

Stepping further outside the traditional finance roles, the modern strategic finance is taking a role in navigating and influencing business model evolution. The insights from “The Office of the CFO in 2024“ echo this role and the concept is further explored in “Reinventing Organizations“ by Frederic Laloux and “Team Topologies,“ two resources that provide a framework for understanding and engaging with organizational paradigms effectively.

In today's dynamic business environment, organizations are constantly exploring new business models to stay competitive and relevant. Finance professionals, with their unique perspective on the organization's financial health and strategic direction, are ideally positioned to influence these decisions. They play a key role in assessing the financial viability of new business models, understanding the implications of strategic shifts, and ensuring that these changes align with the organization's long-term goals.

“Reinventing Organizations” offers valuable insights into how organizations can evolve beyond traditional structures to more fluid, adaptive models. This evolution requires a deep understanding of the systemic interdependencies within an organization, a skill that finance professionals must develop to effectively contribute to business model innovation. By understanding these interdependencies, finance teams can provide strategic insights that help align new business models with the organization’s vision and objectives.

Incorporating insights from “Team Topologies,“ it's important for finance professionals to understand and apply effective team interaction modes and manage team cognitive loads from software development. By adopting collaborative, X-as-a-Service, or facilitating roles, finance teams can enhance their interaction with other departments, offering strategic financial insight and guidance. Managing cognitive load, a key principle from “Team Topologies,“ helps finance teams streamline their processes and focus on high-impact strategic activities. This approach ensures that finance professionals are not overwhelmed by operational details, enabling them to contribute more effectively to discussions around business model innovation and strategic planning.

Moreover, applying the concept of clear team boundaries, as advocated in “Team Topologies,“ assists finance teams navigating business model changes. Clearly defined roles and responsibilities within the finance function foster more efficient and focused interactions with other business units. This clarity aids finance professionals in providing targeted financial insights and support, aligning closely with organizational goals and contributing significantly to business model evolution. By leveraging these team dynamics and structures, finance teams can transition from traditional roles to become integral strategic partners, adept at steering the organization through the complex landscape of business model innovation.

Similarly, “Reinventing Organizations” emphasizes the importance of effective team structures and interactions within an organization. For finance professionals, understanding and adapting to these structures is crucial in navigating business model changes. They must collaborate closely with various teams, providing financial insights and guidance to support the organization's strategic initiatives.

Furthermore, effective stakeholder engagement is critical in this process. Finance professionals must communicate complex financial implications in a clear and concise manner, ensuring that stakeholders across the organization understand the financial and strategic impact of proposed changes. This communication is key to building consensus and driving successful implementation of new business models.

In conclusion, as organizations continue to explore new business models in response to changing market conditions, the finance function's role in guiding this evolution becomes increasingly vital. By leveraging insights from organizational theories and maintaining a strong focus on stakeholder engagement, finance professionals can effectively contribute to business model innovation and strategic growth.

7. Cultivating a Learning Culture in Finance Teams

In order to stay on top of the evolving expectations and capabilities, cultivating a learning culture within finance teams is essential. This need for continuous learning and adaptability is highlighted in “The Office of the CFO in 2024,“ which underscores the importance of developing teams that are agile, knowledgeable, and responsive. The principles set forth in “The Fifth Discipline” and “Thinking in Systems“ offer valuable guidance in building such a culture within finance teams.

“The Fifth Discipline“ introduces the concept of a learning organization, where continuous learning is integral to the organization's DNA. A learning culture encourages finance professionals to stay abreast of new trends, technologies, and regulatory changes, ensuring that their strategies and solutions remain relevant and effective. This culture also fosters an environment where feedback, creative problem-solving and innovative thinking are encouraged, enabling finance teams to develop more effective and strategic responses to challenges.

“Thinking in Systems“ complements this by providing a framework for understanding the interconnected nature of organizational systems. By fostering systems thinking within finance teams, professionals can better understand how their decisions impact the broader organization and its stakeholders. This understanding is crucial for effective decision-making and strategic planning, as it allows finance teams to anticipate and respond to the ripple effects of their actions across the organization.

Moreover, the Pigment research emphasizes the need for finance professionals to be lifelong learners, constantly updating their skills and knowledge to keep pace with the evolving business environment. This continuous learning is not limited to technical skills; it also includes developing soft skills such as communication, leadership, and strategic thinking. These skills are essential for effective stakeholder engagement, enabling finance professionals to convey complex financial information in a clear, concise, and impactful manner.

Cultivating a learning culture within finance teams also involves embracing new technologies and methodologies. By staying at the forefront of technological advancements, finance teams can leverage these tools to enhance efficiency, accuracy, and strategic insights. This approach aligns with the need for finance functions to be more than just number crunchers; they must be strategic advisors who can provide valuable insights and guidance to the business.

In conclusion, fostering a learning culture within finance teams is crucial for adapting to the rapidly changing business world. By embracing the principles of continuous learning, systems thinking, and technological adaptability, finance professionals can ensure they remain relevant, effective, and strategically aligned with the needs of their stakeholders and the market.

8. Conclusion: Integrating Stakeholder Engagement into Strategic Finance

In order to be able to align business to the vision and strategy of the company, finance professionals need to have the skills as well as behaviors needed to successfully engage with their stakeholders. Drawing on some recent research, podcasts and more fundamental books, it’s apparent that finance professionals need and can adopt a proactive, learning-oriented approach to elevate their roles for business success.

The transformation from a traditional, reactive finance function to an agile and proactive strategic partner is a significant shift in the mindset of finance teams. As highlighted in the post, FP&A professionals are expected to be (and if not yet expected, need to put themselves) at the forefront of strategic decision-making, guiding organizations through the complex landscape.

This shift necessitates a deeper understanding of and engagement with various stakeholders, ensuring that financial plans are not standalone artifacts, but aligned with broader organizational goals. In order to gauge your success in stakeholder engagement and proactiveness, assign yourself a KPI of “time spent away from the desk”.

The adoption of systems thinking, as advocated in “The Fifth Discipline“ and “Thinking in Systems,“ equips finance professionals with the tools and frameworks to approach problems innovatively and holistically. By this we are able to understand the business context, the feedback loops and how financial and operational decisions impact each other.

Furthermore, data literacy and the embracing of digital transformation have emerged as crucial competencies. As the Pigment research emphasizes, the ability to navigate and leverage technological advancements is vital for finance teams to provide accurate, timely, and strategic insights. Automation, as a tool for strategic advantage, further empowers finance professionals to focus on value-added activities and strategic initiatives. When you spend all your time in data manipulation to finalize the reports, you are hardpressed to step out of the mindset of the number’s police or scorekeeper as you haven’t had the chance to thing beyond the numbers. Embrace automation to be able to add real value.

The cultivation of a learning culture within finance teams is essential in this rapidly changing environment. Continuous learning, adaptability, and the embrace of technological advancements ensure that finance professionals remain relevant, effective, and strategically aligned with both organizational objectives and stakeholder needs.

In essence, integrating stakeholder engagement into strategic finance is not merely about enhancing communication; it's about reshaping the finance function's role within the organization. It involves a shift towards a more collaborative, insightful, and proactive approach, where finance teams know when they need to bring topics on the table without being requested or asked so that they become key players in driving business strategy and innovation.

In an era of rapid change and complexity, the role of finance professionals as strategic partners is increasingly critical. The future of finance is one where its influence extends far beyond the financials. It is a future where finance is a key driver of strategic initiatives, a catalyst for innovation, and a guardian of organizational integrity (systems thinking) and sustainability. As finance professionals embrace this expanded role, their impact on business strategy and overall organizational success will be more significant than ever before.

How do you understand whether you’re successful in your endeavours? Ask, is business excited to speak with you?

As every time, thanks for making it this far!

A reminder and what to expect:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (3 November 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-3-strategic-implications

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment (today)

2. Sustainable Growth through Collaborative Financial Planning (1 December 2023)

3. Being Directionally Correct: Navigating Business Constraints

So, first a reminder of the series structure (never final before a post is out) and then to the post itself!

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (current post)

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment (17 November 2023)

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

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I. Finance Business Partnering & Strategy

Introduction

As mentioned also in the previous post, I believe that finance is moving from controlling to a strategic role. So, what does strategy stand for and what role I believe finance business partnering should play in setting one up and help business execute on it? One of the books that has resonated with me on strategy is Rumelt’s "Good Strategy, Bad Strategy." In the first section of this blogpost I’ll describe the main concepts of strategy and its alignment with Finance Business Partnering concept. Further sections bring in practical examples from Shopify and Audible, and finally I discuss based on concepts from Brave New Work how finance can evolve to take on the strategic role as finance business partners.

Kernel of Good Strategy and Finance’s Role

Kernel, as defined in "Good Strategy, Bad Strategy", is the core of a strategy that comprises of i) the diagnosis, ii) guiding policy, and iii) coherent actions. Rumelt argues that many strategies fail because they do not have a clear kernel.

"Diagnosis: a definition of the challenge and the most critical aspect of it."

• Diagnosis: This refers to the process of simplifying the complexity to identify the critical aspects or challenges. Before formulating a strategy, one needs to assess the current state of affairs. This involves from finance perspective analyzing financial performance, existing processes, and the market environment. For instance, a diagnosis can include an understanding whether cash flows are a constraint or not, are there any inefficiencies in budget allocation / resourcing, or how do current external environment affect our profitability today and in the foreseeable future. In this stage finance interprets the data into actionable insights to understand the underlying issues to be addressed in the strategy.

"Guiding policy: a clearly outlined approach to cope with the challenge identified by the diagnosis. A guiding policy draws upon an organization’s sources of advantage and focuses a company’s efforts toward targeted objectives that meet the challenge."

• Guiding Policy: The guiding policy outlines an overall approach for dealing with the challenge identified in the diagnosis. There should be a broad approach or guideline to address the identified challenges before setting specific goals. For a finance business partner, this entails modelling and providing insights into the scenarios that business is considering as well as what finance itself is usually the expert in, e.g. costs, but also pricing and growth, as well as broader input into new investment opportunities and their financial implications, as well as looking inward what does finance itself need to do make sure that our processes and tooling can support the direction. Finance business partner will be there to propose also the performance indicators that can be used to evaluate the strategy and give insights to when changes are needed.

"A good strategy includes a set of coherent actions. They are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component."¹

• Coherent Actions: These are the specific steps or initiatives to be taken based on the guiding policy. In this execution phase, finance business partners help to implement and monitor the coherent actions that have been chosen to execute the strategy. Finance business partners will not be there to “support” business, they’ll be there to provide the insights and accountability that the actions are not an isolated set of activities, but through having a 360 degree view of the business, can steer that the efforts are coordinated and drive the business forward in line with agreed strategy.

From the perspective of finance business partnering role in more detail:

• Recognizing Patterns: Finance professionals must be adept at recognizing patterns in financial data. This requires understanding both the technical fundamentals as well as how business actually work. This skill is invaluable in the diagnosis phase and how you’re able to present your understanding will shape the direction of the strategy based on both the opportunities and constraints you are able to bring out.

• Decision-Making Frameworks: The guiding policy is essentially a series of decisions about how to proceed. Finance should be able to steer the decision-making through knowing the relevant decision-making frameworks, so that the business decisions are systematic, consistent, and aligned with organizational goals.

• Execution Excellence: The best strategies can falter with poor execution. And culture eats strategy for breakfast. Finance must ensure that the coherent actions are implemented effectively, monitored regularly, and adjusted as needed based on feedback and results. Finance is also there to promote a culture of learning and discussion, definitely not to be the “strategy police”.

Distinguishing Good Strategy from Bad Strategy

"A good strategy defines a critical challenge. What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp."

Not all strategies are made equal. Finance business partners should provide the clarity needed to discern actionable, clear strategies from generic, aimless ones that ultimately just get dates changed every year on the title page after 55 meetings.

• Fluff: It is possible that a strategy that has gone through multiple discussion layers has had all the corners polished resulting into a nice round bubble. Hence, finance business partners as either the coordinators of the strategy process or as one of primary contributors must themselves communicate clearly, using precise financial terms and ensuring that all stakeholders understand the strategy's objectives and actions.

• Failure to Face the Challenge: Denying or downplaying financial challenges or even unexpected upsides can be disastrous. Whether it's declining revenue, rising costs, or market volatility, finance must play also the role of risk managers by understanding the base, positive and negative scenarios. Even a positive scenario may end in financial ruin when unit economics are not understood or cash flows (AR/AP) are not managed properly. Finance business partners can understand the consequences when they put together the professional competence they have and the business reality that they have learned.

• Mistaking Goals for Strategy: While setting financial targets is important, it's not the same as strategy. Merely stating that the company aims to increase revenue by 10% is not strategic. Finance shouldn’t propose such a metric “out of the blue”. The strategy must delve into how this will be achieved - whether it's by entering new markets, launching new products, or optimizing current processes. And finance needs to think beyond P&L in their proposals, i.e. propose metrics that show whether we are successfully executing on the strategy.

• Template-Style Planning: One-size-fits-all rarely works in strategy. While certain financial models or templates can be useful, they should not limit the strategy formulation process. We’ll also likely not be happy with the precision of the data we have, but we need to be directionally correct, as for planning it seldom matters whether you come to EUR 12mn or EUR 11m in the outcome. The number will be wrong anyway. What matters is that you’re able to adapt and understand what is important to state directionally and what financial management measures might be needed irregardless to not put the company into jeopardy by following through on the plan. Utilize any templates and data you have for your benefit, just don’t follow them blindly.

Leveraging Financial Strengths for Strategic Advantage

"The most basic idea of strategy is the application of strength against weakness. Or, if you prefer, strength applied to the most promising opportunity. A coherent strategy can be, in effect, a form of arbitrage—exploiting a gap between the challenge you face and the resources you bring to bear on that challenge."

In "Good Strategy, Bad Strategy," the author underscores the importance of pinpointing and capitalizing on strengths. For finance business partners, this translates to:

• Data-Driven Insight: Finance professionals are equipped with the tools to mine data for insights. One of course needs to possess the skills to utilize the data. By analyzing the financial and operational metrics—like profitability by product line, customer segment profitability, or capital efficiency—they can identify the organization's financial drivers and blockers.

• Resource Allocation: Once these strengths are identified, finance can make recommendations on how these resources (both capital and operational) can be optimized and funneled towards these areas to amplify success. It could be as simple as identifying which product line is delivering a higher margin than others and illustrating how it might make sense to allocate more marketing budget to it. In order to provide these recommendations, one of course needs to have built trust and an environment of open discussion beforehand.

• Strategic Alignment: Financial strengths should inform the broader business strategy. If the finance team identifies that the company has a strong cash generation capability, strategies around further IT investments, mergers, acquisitions, or increased R&D spending might be pursued.

Overcoming (Financial) Inertia

"Inertia is the natural state of an organization. It is the tendency to keep doing what you are doing, to follow the path of least resistance, to avoid conflict and change."

Inertia in business, especially when related to finance, hampers growth and agility. Financial business partnering as a concept, when aligned with the concepts of "Good Strategy, Bad Strategy", can be pivotal:

• Identifying the Inertia: The first step is diagnosis. Is the company too reliant on a declining revenue stream? Has it been too risk-averse to diversify its investment portfolio? Finance can highlight these points of inertia by contrasting historical data with current financial trends.

• Challenging Status Quo with Data: Armed with financial data and trend analysis, finance professionals can present compelling arguments for change. Showing a declining ROI on a once-profitable venture can be a wake-up call.

• Guiding Policy for Change: Once inertia is recognized, finance can develop guiding policies to initiate change. This might involve policies on diversifying revenue streams, exploring new investment avenues, or reallocating budgets from stagnant areas to more dynamic ones.

Strategy Execution: A Financial Perspective

"A good strategy is, in the end, a hypothesis about what will work. Not a wild theory, but an educated judgment. And it is a hypothesis that must be tested. A good strategy is not just ‘what’ you are trying to do. It is also ‘why’ and ‘how’."

"Good Strategy, Bad Strategy" makes it clear: without execution, strategy is just wishful thinking. Here's how finance ensures strategies are grounded:

• Budgeting & Forecasting: A vision without the necessary funds is bound to falter. Finance plays a crucial role in ensuring that the strategy is backed by a solid budget, and potential financial outcomes are forecasted. This also helps in setting realistic KPIs.

• Monitoring & Feedback: Once a strategy is rolled out, finance tracks its financial implications. Are revenues in line with projections? Are costs overshooting? Regular financial reviews provide feedback, enabling timely course corrections. Just a reminder, do not be the “strategy police” still. We’re not controllers, we’re business partners. You will be heard when you provide advice and feedback, not when you show blinking red lights.

• Risk Management: Every strategy has inherent risks. Finance can foresee potential financial pitfalls—be it cash flow constraints when growth is good or when unit economics are off —and put in place measures to mitigate them. Speak to your business stakeholders, including explain to your sales staff when appropriate what payment terms support growth and what will make you burn through cash too fast. Speak up on success metrics when you see they can be detrimental to the financial health of the company. Also sales staff care about financials when you bring out that they can’t get commissions when there’s no cash left.

II. Real-World Applications: Insights from Shopify and Audible

Turning Finance into a True Strategic Business Partner at Shopify

Russ Jones, the former CFO of Shopify, guided the company’s finance function from startup to IPO and spoke about his experiences in a Role Forward: A Strategic Finance podcast episode from August this year. Below are the aspects from the podcast that both resonated with me for the current blogpost as well as in general to keep in mind:

The Growing Significance of FP&A

In Shopify's early years, FP&A was a one person function. As the company expanded, so did its FP&A (Financial Planning & Analysis) function, which became as crucial as accounting. The first FP&A professional was onboarded two years into the startup’s life. The team’s task became to drive business growth and maximizing profitability (a both-and approach). Through this approach, the FP&A team was the strategic driver of Shopify's financial strength.

Laying a Solid Foundation

Ross Jones pointed out that preparing for an IPO is akin to running a marathon; the groundwork is crucial. Jones highlighted that it’s easier to set in place relevant measures and processes when the company is smaller than during the pre-IPO phase. Lapses in processes can hinder your IPO preparations. Hence, prioritizing automation early on can enable a smooth trajectory towards an IPO. Outside IPO as well, finance processes need to be built to be scalable so as not to hinder business growth. Can you imagine going to business saying that they need to stop growing because finance cannot handle the flows?

However, Jones cautions against seeing automation as a magic wand; if the underlying process is flawed, automation only magnifies the inefficiencies. I bet this is relevant with any finance transformation, i.e. you can’t fix a broken process by making it more efficient… You’ll just get to incorrect outcomes faster.

The Underestimated Managerial Debt

While the tech world is rife with discussions on 'technical debt', Jones introduces the concept of 'managerial debt'. Analogous to its technical counterpart, managerial debt impedes the swift rollout of new features and bogs down processes. The antidote? Delving into the root cause, periodic process reviews, and proactive troubleshooting.

Building a Cohesive Finance Team

One of Jones's critical insights revolves around team dynamics. Recognizing individual strengths and weaknesses isn't just introspective; it's fundamental in crafting a balanced team. As the finance function evolves, it becomes essential to bridge skill gaps, so that competencies grow together with technological capabilities.

Strategic Roles & Inter-departmental Synergy

With growth, companies often grapple with the dilemma of when to introduce specialized roles. Jones is unequivocal about the indispensability of dedicated FP&A partners for every business segment, with each FP&A professional envisioning themselves as mini CFO/COOs - i.e. Finance Business Partners.

Beyond business focus, he underscores the importance of fostering collaboration between the finance and accounting teams. Finance Business Partners need to be strong partners also to their accounting and IT/BI counterparties in order to be able to fulfil their roles.

The Essence of Being a Finance Professional

Jones brought out lastly that finance professionals should exhibit patience, including that situations are rarely as extreme as they might seem. There can be upside also in unexpected outcomes. He also encourages professionals to be catalysts in discussions, thinking about your impact by whether you “add or subtract oxygen” to discussions. Having strong opinions is also expected from FP&A, although it’s necessary to be open to adapting your position based on discussions.

In essence, Russ Jones's journey with Shopify serves as a good guide for FP&A professionals thinking about Finance Business Partnering. His insights show how finance can shape a company's trajectory through contributing to strategy, understanding processes and people. Two ideas particularly stuck with me:

1. having a dedicated FP&A counterparty for each business line giving them a mini CFO/COO and

2. thinking whether as an FBP you add or substract oxygen from situation.

Strategic Finance Insights from Audible's FP&A Head

An even more recent (earlier this week!) podcast episode FP&A Today - This is Audible FP&A explored an array of FP&A related insights ranging from learnings from the Head of Audible’s FP&A Frank Aburto.

The podcast episode discussed how FP&A is about bringing value, not reports, how finance can take a strategic role, having the curiosity to navigate the ever-changing business landscape.

FP&A as Understanding How To Deploy Resources Effectively.

The episode started with the guest’s reflection on what his early career had taught him that is valuable also for FP&A. Understanding objectives and efficiently achieving them was a core principle that was one of his first experiences in the military that is applicable also for an FP&A professional. Know the business, the resourcing and say how you see business can execute on their plans.

Intellectual Curiosity and the Customer-Centric Approach

Frank Aburto brought out as well that intellectual curiosity is more than just a desirable trait—it's the heart and soul of the profession. When serving various teams and projects, FP&A professionals must continuously adapt, innovate, and above all, keep their curiosity up.

FP&A supports in Audible product management, growth, paid media, product marketing. As customer behaviour infleunces the company’s P&L, FP&A professionals need to be able to link the business metrics to financial outcomes. To have a customer-centric viewpoint, intellectual curiosity is key. Finance and accounting skills are the foundation, but you bring differentiated value when you can view the situations through the customer lens.

The Strategic Value Proposition of Finance

Finance at Audible is by no means confined to number crunching. Frank Aburto brought out that you don’t make friends by delivering reports, you make friends by bringing value.

The value-driven partnership is evident in involvement in strategic projects, collaborating with both marketing and product teams as well as liaising between various teams from BI to product managers. Finance takes a strategic role when you act as a connector between different teams and senior leadership, while keeping the customer top of mind.

Technology and FP&A

As the technological advancements touch both business and finance, FP&A professionals need to continue learning as well. The guest brought out his own latest experiences in learning how to better use SQL and Tableau, i.e. also head of Audible FP&A cannot stand aside and expect that “somebody” will understand and drive the technological skills development in finance. With modern tooling becoming accessible for non-technical users, it’s possibly the time that higher technical competencies become expected from FP&A professionals.

Navigating the FP&A Terrain

Excelling as an FP&A professional requires understanding both the customer and company benefits. Both hard and soft skills are paramount, e.g. one should have a strong foundation in accounting and FP&A, but you need to possess relevant problem-solving frameworks as well as ability to articulate your thinking in a way that business and management can relate to.

Of course Excel skills are timeless, you just need to utilize your data analysis and finance understanding effectively knowing what is accurate, what is precise and what is relevant. In any case, you need to understand and define the problem that you want to address, which is a skill that not all possess.

To summarize, the episode with Audible's Head of FP&A brought out the need to be curious, make friends by bringing value, not reports as well as moving from fundamentals to understanding the product of the company to take a strategic role.

III. The Evolutionary Path of Finance as per Brave New Work

Stepping now into the “how” of Finance Business Partnering, "Brave New Work" by Aaron Dignan explores how organizations can take a more proactive stance to create a more adaptive, creative and resilient workplaces. While the book extensively discusses organizational design and work processes, its implications on the finance function bring a fresh perspective into how finance should evolve over time. Aside from the book, I recommend also their podcast.

The OS Canvas and Finance’s Role in Strategy

The OS Canvas from "Brave New Work" presents a framework that identifies and addresses key components of an organization's operating system. In terms of finance, this canvas helps to understand what drives success of the organization and how finance should structure their own function. The canvas includes sections such as authority, purpose, structure, and processes.

Consider “purpose”, the heart and soul of an organization. It's not just about profitability, but also encompasses sustainability and growth. The “structure”, meanwhile, becomes a mirror reflecting the architecture of the finance team, be it centralized or decentralized. And “processes”? They're the lifeblood - the workflows, the strategies, the methodologies that the finance team adopts. Trust the process, but not blindly.

Dignan suggests that evolutionary organizations are not just focused on efficiency but also adaptability and responsiveness. Finance should keep in mind that ultimate efficiency may result in trading off ability to respond to changes when there is negative slack in the organization.

Adaptive Mindset in Finance

Dignan stresses the importance of being adaptive, an attribute he believes modern organizations should possess. With the world becoming more volatile, uncertain, complex, and ambiguous (VUCA), FBP professionals need to be proactive, adapting to changes in business environment. This could mean willingness to iterate your scenarios and models on the go, not to lock yourself into 3-5 year “agreed” forecasts to operationally helping business to discuss pivoting investment strategies or reallocating resources based on changing external conditions. The keyword to succeed in this? Adaptability.

Decentralization of Decision Making in Finance

One of the core principles discussed in "Brave New Work" is decentralizing decision-making to empower teams and individuals. For finance, this could mean empowering FBP professionals to embed themselves into the business units they support and take full responsibility of their financial results.

Rather than having a top-down approach or CFO mediating business needs or validating the work, finance business partners, with their deep understanding of their business domain, can create more relevant financial forecasts and insights. This bottom-up approach, advocated by Dignan, ensures that finance contribution is more relevant and actionable.

Integrating Real-World Applications

It is possible to draw parallels from the insights from Shopify and Audible to the principles of "Brave New Work".

For example, Shopify puts emphasis on dedicating FP&A partners to specific business functions and them taking on a mini CFO/COO role. Russ Jones's insights on managerial debt and the importance of recognizing and addressing root causes resonates with the book's focus on continuous improvement, including not letting problems linger.

Similarly, Audible's FP&A Head discussed the importance of a customer-centric approach and the strategic value proposition of finance, which mirrors Dignan's sentiments on purpose and value-driven processes.

Conclusion

In essence, "Brave New Work" provides a fresh, evolutionary lens through which we can view the finance profession. Finance needs to take a forward-thinking perspective in the modern business landscape by embracing adaptability, curiosity and creativity. Decentralized decision-making is key so that autonomous Finance Business Partners can provide real value to their business counterparties. Finance should not only try to keep pace with the rapid changes, but be the strategic partners that enable organizations to fulfil their purpose.

IV. Conclusion

The Convergence of Finance and Strategy: As business landscapes evolve, finance is no longer a mere number-crunching function. It stands at the intersection of data, strategy, and execution, facilitating decisions that drive business forward.

The Importance of Adaptability: With real-world insights from companies like Shopify and Audible and the concepts from Brave New Work, it’s evident that adaptability is key. Finance professionals must continuously hone their skills, stay curious, be willing to iterate on the go, and keep a strategic mindset.

Collaboration is the New Currency: The success of modern finance hinges on inter-departmental collaboration built on trust. Finance Business Partners need to be embedded into the business lines they support as well as have strong relations with accounting and IT.

Reimagining the Role of Finance: Inspired by "Brave New Work," it’s essential to see finance as a dynamic function that evolves together with the business. By fostering a culture of curiosity, continuous learning, and customer-centricity, finance can shape the future, not just try to be the fast follower.

So, how do you know you’re succeeding in being a strategic finance partner to your business? Ask, are you invited to business meetings?

Thanks for making it this far!

A reminder on the structure of the blogpost series below, including when I expect to write the next one (and start the second part of the series).

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

   https://www.roosimagi.com/p/fbp-series-1-post-1-the-evolving

2. Collaborative Tools and Strategies for Finance Business Partnering (20 October 2023) https://www.roosimagi.com/p/fbp-series-1-post-2-collaborative

3. Strategic Implications of Finance Business Partnering (current post)

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment (17 November 2023)

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

2. Collaborative Tools and Strategies for Finance Business Partnering (current post)

3. Trends in Finance Business Partnering (3 November 2023)

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

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I. Introduction

In the evolving finance landscape, adaptability and collaboration are paramount. A finance business partner can add value only based on understanding and being intertwined with core business functions, therefore we need collaboration tools and strategies to succeed in our work. business partners, finance departments need to pivot from . To add value as a trategic enabler, not just an Excel jockey, I’ll explore today the tools and strategies that foster collaboration from mainly planning perspective.

II. Finance Business Partners: Collaboration in Action

A recent CFO Trends podcast episode Elevating Finance Business Partnerships: Unlocking Their Potential discussed the success factors for being a finance business partner. The episode highlighted how finance professionals can take on the mindset and skills required to be successful business partners, what it takes for a finance organization to go through the transformation, as well as how to measure whether we’re successful in the change.

Initially, the episode described common challenges in taking on a more proactive role. These obstacles include lack of time, unfamiliarity what does finance business partnering mean and difficulties in collaborating with non-finance peers. Barriers can be the systems, processes, capabilities and even organizational culture.

One of the key ideas from the podcast I took on board was the importance of cultivating relationships. It’s both a skill as well as a collaborative strategy that you cannot compensate for when you’ve already reached the time to start the planning cycle. Trust and relationships need to be built over time so that planning cycle can be managed effectively and productively.

Shifting mentalities was another focal point. As a key mindset, finance should transition from being the police to helping people and solving business problems. You will be succesful when business is excited to speak with you. Reflect on this - is your presence perceived as a hindrance, causing conversations to halt? Or is there genuine enthusiasm (or at least neutral acknowledgement) when you offer your perspectives?

An intriguing metric suggested by the was “time spent away from your desk”. Quantifying the success of finance has always been challenging. Should it be measured by stakeholder satisfaction? Return on Equity (ROE)? Time spent away from your desk? It’s an innovative approach at least worth a try.

Ultimately, according to the podcast, finance needs to position oneself from scorekeepers to future advocates and guide business in the journey. I fully subscribe to the idea.

III. The Continued Reign of Excel

For years, Microsoft Excel has been the go-to tool for financial planning and analysis. It's versatile, ubiquitous, and most finance professionals are well-acquainted with its functionalities. Who doesn’t love Excel :) Some key advantages include:

• Familiarity: Almost every finance professional has had some exposure to Excel. This makes it easy to adopt and use without a steep learning curve.

• Flexibility: Excel can be easily customized to fit your unique style and needs, be it for crafting complex financial models or creating dynamic dashboards.

• Collaboration: Microsoft 365 transforms Excel from a solo workspace into a collaborative platform, allowing multiple users to work on the same spreadsheet in real-time, enhancing its collaboration potential.

A survey on 200 US mid-sized company professionals sponsored by DataRails found that:

About a quarter use only Excel, almost half use a combination of Excel and FP&A software and the remaining quarter have dropped Excel altogether and use specialized software.

So, Excel remains as a relevant tool, but even with its formidable capabilities, Excel isn't without flaws. Its scalability can be restricting, version control is often challenging, and there's always the risk of errors that you’ll not see or understand.

The effectiveness of Excel truly lies in the hands of its user. Before transitioning to contemporary tools, mastering Excel is crucial. Merely transferring ineffective habits into newer platforms won't elevate collaboration standards. Excel serves as an ideal learning platform, and its emphasis on clear data analytics and transparency can be integrated into modern tools when the shift is needed.

To illustrate, Excel can be employed to produce beautiful, user-friendly solutions, establishing a sense of trust in your analytical skills and thought processes. This also fosters an environment where continuous improvement is encouraged, as stakeholders can clearly see the path to your conclusions. However, it's worth noting that Excel can be a challenging tool for those outside the finance realm, creating friction, a topic I wrote about recently. The emerging tools aim to offer the clarity, design simplicity, and transparency that can sometimes be challenging to achieve with Excel alone.

IV. The Rise of Modern Planning and Analytics Tools

Business environment is changing at an everfaster pace, and while traditional tools like Excel have served well, the demand for more specialized financial planning and analytics tools has never been greater. Of course, the time to switch to modern tooling seems to always be “now”, but are we getting closer to easier “self-service” implementations? I hope so. The modern era does call for tools that allow us to understand and scenario-plan better the unique challenges businesses face today.

I will below discuss the principles and benefits that resonate with me. I understand that the tooling itself is becoming better and better by the day (and year), therefore a list from 2023 might in any case not be relevant for 2024 and 2025. Furthermore, I do not have first hand experience with most of the modern tools. Onto the principles.

1. Reimagining Processes, Not Just Replicating: It’s tempting to merely duplicate existing processes into newer systems, but that's not the solution. We both need to accept that it’s not the case as well as make sure that we don’t blindly do that. We need to take the time to think through what in our finance processes are not working before we try to leverage the prowess of modern tools. By doing so, we ensure that our foundational approach is robust, which modern tooling can then enhance.

2. Transparency and Traceability: One of the standout features of contemporary tools is transparency. With modern analytics tools, every input, change, or decision can be tracked back to its source (with more or less effort). This traceability not only boosts confidence in the insights but also simplifies learning and iterations to reach to a relevant outcome.

3. Version Control: Hopefully, gone are the days of sifting through multiple file versions, trying to decipher the most recent or accurate. Modern tools come with integrated version control, ensuring that everyone is on the same page, literally and figuratively. One needs to know how to use these features.

4. Enhanced Collaboration: The new age tools emphasize real-time collaboration. No longer should an analyst need to send out 40 separate Excel sheets and then grapple with the daunting task of merging responses. With modern platforms, multiple stakeholders can simultaneously contribute, edit, and review – all within a unified environment.

5. Design and Ease of Use: As before, a tool's design isn't just about aesthetics; it's about trust. An intuitive, user-friendly interface ensures not just ease of use but also fosters confidence in the outcomes and insights. A beautifully designed tool minimizes friction and promotes active engagement.

6. Reduced Reliance on Cumbersome Practices: Mailing bulk Excel files, manual consolidations, and repetitive data entries are practices of the past (and the present…). The new tools help you automate these tedious tasks, freeing up time for more strategic activities.

When we don’t need to spend 80% of our time massaging the data and inputs, we can take a step back and think through are we doing the right things. It is a tough reality when modern tooling reveals that what you wanted to automate actually was mostly irrelevant. But we need to learn this sooner than later to provide the value that we want to provide.

In conclusion, the modern suite of financial planning and analytics tools is not just an upgrade in technology; it's a shift in philosophy and mindset. We should keep in mind what we want to get from the tooling - data-driven decisions that are made swiftly and confidently.

V. The Fifth Discipline: Building a Learning Finance Ecosystem

Peter Senge's "The Fifth Discipline" is one of the books that based on the cover I didn’t pick up very fast, but which included content that really resonated with me. In connection with Finance Business Partnering, I believe the book provides a blueprint that's relevant for creating a collaborative financial ecosystem.

Here's how his principles align and augment the FBP landscape:

1. Systems Thinking: More than just a theoretical approach, systems thinking is the lens through which finance professionals should view their domain. It is about perceiving the organization as a cohesive whole rather than fragmented units. For finance, this means not just seeing numbers, but understanding their narrative (think also storytelling). Every financial decision, big or small, flows through the organization. What you recommend and shed light on influences what customer facing roles, sales, marketing, operations, and others do. By embracing systems thinking, finance experts can predict and understand these ripples and their impacts, ensuring that they pave the way for more informed decisions.

2. Personal Mastery: Finance roles are continuously evolving, including the current theme of finance business partnering. Finance professionals need to evolve with the times and business expectation. Personal mastery isn't just about technical proficiency but also curiosity, thirst for learning (including testing whether you are right, not proving you are right), developing, adaptability, and the desire to continuously refine one's skills. It's this mastery that differentiates a regular contributor that will be automated away from someone who drives change. As Tim Urban aptly put it, aim to "be the chef, not the line cook." A chef innovates and sets the direction, while the line cook, albeit essential, follows set recipes. When something doesn’t go as expected, the chef knows what happened, the line cook tries again without learning or google’s for a new recipe.

   

3. Shared Vision: Finance is the backbone of an organization, and its strategies should be in sync with the company's broader objectives. But it's not just about alignment; it's about inspiration. A shared vision ensures that every department, from marketing to product development, is marching to the same rhythm. Finance has a critical role in sharing the vision throughout the planning cycle. When finance professionals foster this collective vision, they act as the bridge, ensuring that every decision, every strategy, and every goal echoes the organization’s core mission and values.

Bring another idea into this section, according to Roger Martin, integrative thinking is as well about embracing complexity and finding solutions that incorporate diverse perspectives. In finance, this means not getting tethered to binary choices (profitability vs growth), but exploring the entire spectrum of possibilities with an open mind.

VI. Peopleware: The Human Side of Collaboration

Financial business partnering, tool usage and transformation all include parts of product and project thinking. One of the books I appreciate on a more software development oriented theme is “Peopleware” by Tom DeMarco. The book emphasizes the importance of the human factor. These insights, while originally tailored for software projects, can in my mind applied to the realm of financial business partnering, emphasizing that beyond models and spreadsheets, there's a human element driving success.

Peopleware Principles in Financial Business Partnering

1. Human-Centric Tools: Any tool is only as effective as its user. Based on the themes of of “Peopleware”, tools for financial business partnering should cater to the user's human needs, making them more about facilitating conversations and enhancing mutual understanding than just about crunching numbers and finding what is precise and correct.

2. Team Dynamics & Jelled Teams: “Peopleware” speaks about the concept of “jelled” teams - those that gel together and function cohesively. In finance, this means creating a collaborative environment where mutual respect and open dialogue reign supreme. Both for finance and finance as part of the whole organization. It's about team chemistry, where the sum is greater than its individual parts.

3. Workspace and Environment: As highlighted in "Peopleware", the workspace plays a critical role in team productivity and harmony. For finance teams, this could mean providing spaces that encourage spontaneous discussions, ensuring a balance of focused work zones and collaborative areas, and incorporating flexibility in the work environment. Collaboration in today’s cross-country and hybrid work environment mean focusing on collaboration tools and their usage as well as ensuring the time to create a human connection outside the direct tasks.

4. Protection from Interruptions: Just as software developers need uninterrupted flow time, finance professionals need periods of deep focus, especially when dealing with modeling or analysis. Recognizing and minimizing needless interruptions can drastically improve productivity. The concepts of deep work and flow belong here as well.

Beyond Peopleware: Enhancing Collaboration and Communication

5. Active Listening and Empathy: Communication is the bedrock of collaboration. Active listening—approaching discussions without preconceived judgments and ensuring that every voice is heard and valued—is vital. It might be tempting to go all in with your newfound insights or precise forecasting, but this will not make your life any easier. Listen and learn.

6. Harnessing AI for Communication: In the era of digital transformation, AI tools can act as a bridge for those professionals who might not be natural communicators. Let’s face it, FP&A professionals are not the most extroverted people around. AI tools can help us out in trying out how our communication may be perceived, what might your stakeholders really expect from you. Take the time to generate the 5 ice breaking questions to have a more smooth conversation when you are stuck with your business counterparties without the financial model in front of you.

Integrating insights from "Peopleware" with modern practices in financial planning underscores the significance of the human element as well as provides the basis to think how to build the foundation for effective collaboration.

VII. Conclusion

The dynamic business landscape requires adaptability and collaboration from finance. Finance professionals, in the evolution to finance business partners should know how to utilize both time-tested tools like Excel as well as modern analytical tools to foster effective planning and analysis.

While technological advancements are here to make the work smoother, human element remains central. The principles from “Peopleware” and “The Fifth Discipline” bring out the need for having a systematic view how tools, processes, and the human element create an environment where through trust and shared vision we can do the right things, not just things right.

Finance's transformation into business partnership roles requires balancing the onboarding of new tools and nurturing genuine human interactions. Financial business partners are not just tasked with number-crunching; they're the agents of change who bridge the gap between data-driven insights and strategic business objectives. Sounds good, doesn’t it?

Whether it's through mastering Excel or integrating modern planning tools, the end goal remains consistent: collaborate so that decision-making is both swift and confident, all while fostering mutually beneficial relationships geared to reaching shared objectives.

Key Takeaways:

• Collaboration and adaptability drive financial success.

• Finance role evolution emphasizes business partnerships.

• Trust is foundational for effective planning cycles, build trust before the planning cycle starts.

• Excel remains relevant, but modern tools offer advantages.

• Financial tools should enhance decision-making processes.

• “The Fifth Discipline” provides a blueprint for having a foundation to offer value as finance business partners.

• Human-centric tools foster effective communication.

• Embrace both technology and the human element.

• Active listening is vital for genuine collaboration.

Thanks for reading until the very end! Next article in two weeks.

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (9 October 2023)

2. Collaborative Tools and Strategies for Finance Business Partnering (current post)

3. Trends in Finance Business Partnering (3 November 2023)

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

I’ve come across the term in LinkedIn and in different finance podcasts. From one hand it’s not clear why we’d need a new name for a role that finance should be fulfilling anyhow, but breaking out from a mould that is not working as it should be sometimes requires this. The core ideas around the term are appealing, so I aim to get a better grasp of the fundamentals and reach step 3 in the Learning Loop advocated by Shane Parrish of Experience → Reflect → Compress/Abstract → Action.

The outline that I’ll start off the post series is as follows:

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (current post)

2. Collaborative Tools and Strategies for Financial Business Ecosystem

3. Trends in Finance Business Partnering

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

As I learn about the FBP (Finance Business Partnering) concept in the coming weeks and months, there can be iterations to the structure. Or who knows, maybe any additional posts (well, should finish by Christmas).

And now, to the post of the day.

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The Evolving Role of Finance

I. Introduction

The role and impact of finance function is evolving together with technical and organizational development. Finance function is not the most innovative business functions given the low tolerance for error. Perhaps also the perception of what finance can and should do is not very business oriented. However, modern solutions enable finance to close the books and access data ever faster with high reliability and therefore dedicate time for bringing out actual insights that enable unlocking new value. Perhaps we are at the gusp of an exponential growth curve of finance value to the organization. At least I hope and feel that we might be getting there.

In researching and writing the current post, I’ve first utilized two articles to illustrate the trends how finance role has evolved: McKinsey's "Finance 2030" and Anders Liu-Lindberg's "Welcome to Finance 5.0". I’ll summarize the past, present, and potential future of finance from its its transactional roots to the strategic role of today.

Based on the insights from Netflix co-founder and first CFO Jim Cook, I’ll then describe the importance of finance partnerships. Further, by integrating lessons from Jim Collins' "Good to Great" and Donella Meadows’ “Thinking in Systems”, I’ll draw parallels between the transformational journey of companies and that of finance roles. Furthermore, I’ll propose how at a time when business evolve ever faster and we have access to more and more data, the ability to think in systems is becoming critical for finance.

Lastly I’ll speculate on the emerging trends, technological advancements that finance professionals should be aware of, emphasizing the mindsets needed to be adaptable and to have strategic foresight in this ever-changing landscape.

II. Historical Perspectives of Finance

Once primarily seen as the organizational backbone responsible for bookkeeping and transactional activities, the finance department's role has dramatically shifted over the decades.

Cost and Efficiency Drive: Relying on the McKinsey’s Finance 2030 article, over the past ten years, finance departments across various sectors have streamlined their operations, decreasing costs by an impressive 15% to 35%. These weren't mere austerity measures. Instead, they were deliberate strategies to move from manual labour to driving greater value with leaner operations.

Emergence of Finance Leaders: Amidst this transformative phase, some finance departments emerged as "finance leaders", setting a benchmark in operational excellence. While already efficient, they challenged traditional paradigms, pushing the boundaries to realize even better outcomes. Being a leader meant to not just drive cost-cutting but optimizing company’s resources to derive maximum value.

Shift to Value-Driven Activities: According to McKinsey, the transformed finance organizations departed from the conventional finance roles. No longer relegated to just numbers, finance professionals evolved as strategic partners. They played central roles in shaping organizational strategies, leading financial analysis, and pioneering risk management initiatives.

III. The Modern Finance

Today's finance function stands at the crossroads of tradition and innovation, guided by strategy, enabled by technology, and driven by vision. Inspired primarily by insights from Anders Liu-Lindberg’s Welcome to Finance 5.0 article, I’ll write about the new finance paradigm.

Beyond Transactions: The contemporary finance professionals are not just executors but strategists. As Liu-Lindberg puts it, they are now at the helm, steering their organizations' strategic directions. This sentiment echoes in McKinsey's findings, with leading finance teams being the enablers, not just the controllers, playing an indispensable role in guiding their firms towards data-backed, informed decision-making.

Tech-Centric Approach: The digital age demands a tech-centric approach, and modern finance is rising to the challenge. While Industry (and Finance) 4.0 is about technological advancements, including AI and advanced analytics, Liu-Lindberg's "Finance 5.0" envisions that human is back at the centre of work providing the value by utilizing the technological capabilities. Artificial intelligence, machine learning, advanced analytics are not useful without somebody applying them.

Upskilling for the Future: The dynamism of the modern business landscape necessitates continuous learning. Both McKinsey and Liu-Lindberg stress the unavoidability of upskilling. As the level of complexity and speed of change increase, finance professionals cannot rely solely on their numeric knowledge. Even though we have easier access to tools with no code and low code solutions, finance professionals need to have the capacity to know what to ask from these tools.

At the same time, upskilling cannot be approached as just attending workshops or courses; it's about cultivating a mindset of perpetual learning, embracing change, and staying ahead of the curve. A mindset that may not come naturally for finance professionals.

IV: Finance Partnerships: Beyond Numbers to Business Strategy

Today, in the ever-evolving corporate environment, finance's role is undergoing a fundamental transformation. We (should) see the end of siloed finance teams and move to the paradigm of integrated partnerships. Taking inspiration in this section from a recent FP&A Today podcast titled “Parnering & Chill”: Netflix’s first CFO on Blockbuster FP&A with Jim Cook, this partnership extends beyond the ability to present the numbers. Early and sustained collaboration is critical to be able to provide actual impact that enables business success.

Embracing a Collaborative Culture: The role of finance extends beyond ledgers and spreadsheets; it's a vital partnership. Finance professionals need to possess a holistic understanding of the business in order to be able to ensure that the organization has a solid financial foundation. The collaboration and learning that finance enables allows business stakeholders to understand how their activities impact the bottomline, ensuring that both sides are comfortable asking questions at a relevant time and deepen their understanding.

FP&A: Delivering Strategic Insights over Spreadsheets: FP&A professionals are urged to see themselves as stewards of insights rather than just data handlers. The real product finance offers isn't the spreadsheet but the actionable insights derived from it.

“Your job is not the spreadsheet. Your product is not the spreadsheet. Your product are the three or four key insights of that report and maybe some recommendations how to course correct and developing that relationship to figure out how to grow the company.”

Think of jobs to be done. In this sense, you are the CEOs of your unique products, ensuring that each insight carries strategic significance, rather than drowning your business counterparties in an ocean of data.

The Rise of FP&A Personnel as Mini CFOs: With the responsibility of bring out insights and actionable recommendations, FP&A professionals are the “mini CFOs”. Thanks to ever-easier BI capabilities, FP&A roles are no longer confined to creating reports but extend to guiding business units with strategic clarity. This is a different mindset that is also sometimes hard for finance introverts to embrace, but it brings depth to their roles, elevating their value to the business.

The Importance of Going Deeper than Data: Rather than passively presenting numbers, FP&A professionals should probe deeper, constantly asking from their insights “so what”, “now what”, and crucially “why”. Of course getting to the “why” requires finance to look up from their spreadsheets. Both an active engagement with their stakeholders as well as the data helps unearth real connections, fostering a more nuanced understanding of, for example, the path from sales leads to performance.

The Courage to Communicate: The best insights are ineffective if not communicated with conviction. It's vital for emerging FP&A professionals to hone their “soft skills”, establish relationships, seek mentorship, and cultivate the courage to voice their insights and recommendations with confidence. We cannot put the responsibility of picking out the valuable insights from our detailed reports on business stakeholders. Either we communicate with conviction and test our hypotheses through this or we’re not doing our jobs.

Cultivating Relationships through Active Listening: Jim Cook brought out in the interview as one aspect that resonated with me the value of building robust professional relationships early on. This includes active listening tours, deploying non-judgmental open-ended questions to delve deeper into company sentiments and identifying potential points of tension.

“What you're looking for is where is the tension in the partnership between finance and that in that org? How can you better serve them? How can you go faster with more clarity? Developing relationships means starting with a conversation, not starting with a spreadsheet. You do not start with a spreadsheet. You start with a conversation of the business, how they think about the business because you're going to learn something as well.”

Such proactive engagements fortify FP&A roles, ensuring we're more than just number crunchers but become the valued partners.

V. From Good to Great – Learning from Top Companies

The journey from mediocrity to excellence is often arduous, laden with challenges, insights, and invaluable lessons. One also often doesn’t notice what is mediocre or doesn’t have incentives to step out of the comfort zone “when things are fine”. Jim Collins' "Good to Great" masterfully encapsulates why a journey from good to great is needed, how to identify what is greatness. The transformational stories in the book resonated with me also from the perspective of finance business partner evolution.

Insights from "Good to Great": At its core, "Good to Great" delves into what differentiates good companies from truly great ones. It underscores the importance of visionary leadership (level 5 leaders), disciplined culture, and an undeterred focus on core competencies. Level 5 leaders have personal humility and are more interested in company success than personal accolades. Aside from an inspiration for CFOs, from FBP perspective as well, one should focus on what you as a finance professional can do to make the company successful, as opposed to admiring how elaborate your financial models are.

In addition, the book describes the Greek parable of the hedgehog vs the fox. The fox knows many things and is cunning, while the hedgehog knows “one big thing” and is able to always outsmart the fox. The “one big thing” as described in the book would in the business context comprise of three things:

1. What you can be the best in the world at,

2. What drives your economic engine,

3. What you are deeply passionate about.

By this, organizations should focus on what they can be best at and finance business partners need to shed light on this. FBPs must identify key financial metrics and drivers and ensure that resources are allocated efficiently towards them. It's a call for us to understand the strengths, weaknesses, and economic drivers of the companies we operate in.

The Flywheel and the Doom Loop: According to the book, "Flywheel" represents the cumulative effect of multiple efforts, consistently applied in the same direction, resulting in momentum and eventual breakthrough. In contrast, the "Doom Loop" depicts inconsistent, disjointed efforts leading to a lack of sustained momentum and direction. Finance Business Partner role is not about transactional financial duties but about driving consistent strategic actions and help the organization build sustainable momentum. Conversely, sporadic or reactive financial strategies can trap organizations in the Doom Loop, preventing them from achieving long-term financial stability and growth.

Mirroring the Finance Evolution: Much like the companies that transitioned from good to great, the finance function role is undergoing a similar metamorphosis. Previously stuck in transactional duties, the modern finance partner is a strategic ally, armed with insights and integrated into core business functions. One should bear in mind what forms a mutually beneficial partnership. It’s not about being the service provider who just answers what is being asked for without taking ownership of the context. The role evolution resonates with the companies' transformational journeys, underscoring the importance of adaptability, learning, and growth.

VI. Systems Thinking and Its Significance for Finance Business Partners

In business, every decision, no matter how trivial, has ramifications. Understanding the breadth of the impact requires a holistic approach to decision-making rooted in systems thinking, as articulated in Donella Meadows’ "Thinking in Systems."

Introduction to Systems Thinking: Systems thinking isn't merely a concept; it's a perspective. It encourages viewing problems not in isolation but as part of a larger system. In essence, systems thinking is about recognizing patterns, understanding relationships, and predicting outcomes based on various inputs into a system.

Leveraging Systems Thinking: For financial partners, systems thinking is invaluable. No decision is made in a vacuum. The decision have an impact on and are impacted by numerous factors - market and organizational dynamics, operational constraints, to name a few. There are both reinforcing as well as balancing feedbacks that you need to understand and take into account. Your actions can add fuel to the fire (when needed and when not needed), as well as extuingish the flame (when needed and when not needed). By embracing systems thinking, finance partners can understand the implications of their recommendations and decisions, ensuring they are the enablers in unlocking business value.

Real-world Implications: Adopting systems thinking in finance has tangible benefits. It aids in creating robust financial models that are based on reality, account for the second and third order circumstances as well understand that there will always be a level of uncertainty that no model can represent. A great FBP understands when the situation is complicated, when it’s complex and when it’s chaotic to tailor how to approach building the financial modelling with a relevant goal in mind.

Most importantly, systems thinking cultivates a culture of proactive decision-making, ensuring financial partners are not just reactive to challenges but are perpetually prepared to account for them.

VII. The Future of Finance Business Partnering

The finance landscape, known for its adherence to tradition and precision, is amidst a transformation that beckons an entirely new era. And as with any transition, it paves the way for contemplation – where are we headed next? Are we ready to acknowledge that there is a new path we should take? Even though we should admit that the only constant is change and it’s not worth trying to predict the future, let’s still think what could the future hold for finance.

Predictions for the medium term: The acceleration of technological advancements is steeping into the finance domain with hints of predictive and prescriptive analytics, automated finance, suggesting that also the finance domain is on the brink of needing to rethink what we stand for. Automation and AI are two domains that should enable finance to look up from the spreadsheets thanks to streamlining the transactional tasks and venture into more complex territories. Predictive analysis, so far more understood perhaps as the domain of hardware operations, should become commonplace for finance professionals.

Moreover, as the economic landscape is ever-evolving, finance professionals will find themselves at crossroads where we should be able to utilize external and internal intelligence. Finance business partners will serve as bridges, merging internal insights with external developments and outlook, ensuring business remains evolving in accordance with external circumstances.

Technological Advancements and Changing Landscapes: The growing influence of technologies like AI, blockchain, quantum computing and the like may redefine both financial transparency and transactional efficiency. At any given moment of time, finance needs to be on top of the technological developments and step out of the compliance focus to real risk management. Lagging behind in technology adoption may become a risk on its own.

Similarly, real-time data analytics will enable finance business partners to make instantaneous decisions and recommendations to business, merging foresight with real-time insights. Finance business partners should have the technological prowess to understand what insights are relevant to be gained on a real-time basis, what at daily, weekly and monthly intervals. The judgement of efficacy and value from the insights is a skill that will be critical for finance business partners to hold. We can’t be the “CF-nO”s, we need to be the CF-why’s and CF-hOw’s of our business domains.

Additionally, as businesses grapple with novel challenges – be it sustainability concerns, shifts in consumer behavior, or one-off extreme events – finance roles will need to be agile and open to learning areas that it was more comfortable to say that it’s not part of our responsibility. The finance business partner of the future is a mix of strategist, a tech whiz, a product manager, and a financial modelling guru, all rolled into one. We need to be T-shaped generalists.

VIII. Conclusion

The finance function has historically been viewed as a largely transactional role within organizations. However, the evolution of technology, organizational structures, and business needs has seen this function pivot towards more strategic and value-added activities. While finance was once primarily concerned with bookkeeping and financial recording, it has now evolved to become a strategic partner in business, shaping organizational strategies, and pioneering risk management initiatives.

Finance professionals, in their modern incarnation, are not just number crunchers but proactive, strategic thinkers who embrace technology, upskill continuously, engage deeply with business units, and adopt a systems thinking approach. As the lines between finance and other business functions blur, the modern finance professional must be versatile, tech-savvy, and business-oriented, all at once. At the end, it's not about predicting where finance is heading, but actively shaping its trajectory.

Some takeaways from today:

• Finance's role has evolved from transactional to strategic partnerships

• Finance 5.0 puts the human back at the centre, but one needs to utilize the tools from 4.0

• FP&A as a product: Your product is not the spreadsheet. Your product are the three or four key insights

• Don’t be satisfied with good. Know what great looks like and see that you enable your business stakeholders reach it.

• Systems thinking is essential for understanding how your inputs reverbate through the organization.

• Interconnectedness ensures adaptability and trust in changing landscapes.

Thanks for sticking with me! Next article in two weeks.

I. Strategic Alignment through Finance Business Partnering

1. The Evolving Role of Finance (current post)

2. Collaborative Tools and Strategies for Financial Business Ecosystem (est. 20 October)

3. Trends in Finance Business Partnering

II. Collaborative Planning as a Catalyst for Growth

1. Stakeholder Engagement in Vision and Strategy Alignment

2. Sustainable Growth through Collaborative Financial Planning

3. Being Directionally Correct: Navigating Business Constraints

While working on a scenario analysis last week, I found myself impatiently waiting for the data query to finalize (it took more than 10 seconds, by a lot…). From one hand, I felt justified in my thoughts that “somebody” should configure the BI solutions in a more efficient way. But really, it’s actually odd, considering that not long ago, waiting for an IT request took weeks and now waiting for a few minutes is annoying. The possibility of having instantaneous results at our fingertips, is diminishing our tolerance for any form of delay.

The experience made me reflect on two articles I recently came across - Scott Belsky wrote in Edition #9 of Implications about “Our Declining Tolerance for Friction”1 and Fabrizio Dell’Acqua he found in his research paper that recruiters were “more likely to free-ride when the quality of algorithmic advice is too high.”2 So, we have both an increasing intolerance towards friction, but we will become lazy when there is none?

This got me thinking: how does this increasing impatience apply to the world of FP&A? In this piece, I'll explore the good, the bad, and the balance of friction from the perspective of FP&A.

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The Current Landscape

In today's digital age, we as finance professionals, like everyone else, have become accustomed to instant solutions. An increasingly impatient business overall and evolving business requirements have changed our perspectives. Remember the last time a slight delay in your data visualization tool annoyed you or when a stakeholder demanded real-time financial insights?

As Scott Belsky aptly remarked, "The more friction software eliminates from our lives, the more intolerant of friction we become." reminding us that our personal interactions with technology inevitably influence our professional expectations.

The Positive Side of Friction

At the surface, the trend towards instantaneous, frictionless operations sounds positive. But let's pause and reflect on a specific FP&A experience. Consider a scenario where your automated forecasting tool projected some anomalous results. Aside from fixing the anomaly you actually then understood even better how the inputs impact the outcomes. This "friction" in having to manually analyze the data flows ensured relevance.

Belsky's words resonate here: "Friction makes us feel experiences as they happen." In the realm of FP&A, these moments of friction can be pivotal. They take us out of the routine and compel us to critically assess automated outputs and help validating the appropriateness of our financial models.

Understanding the Details

The ease provided by modern tools is undeniably beneficial. But there's a lurking danger: FP&A professionals becoming estranged from the core financial data. Simply put, automation shouldn't replace understanding. An FP&A professional isn't just a data cruncher. We're strategic business partners, shaping the organization's direction with our insights. And to offer valuable insights, we must understand the intricacies of our data.

The balance is crucial: leverage modern tools for efficiency, yet stay connected to the data. It couldn’t be that as an FP&A professional we would start pointing at “IT” or “data source” as the cause of our flawed analytics. The data is never perfect, therefore we need to know how we can work with the data in a way that gives relevant outcomes in a timely manner to be able to have valuable business discussions.

Resilience and Dependence

As we further eliminate friction, we must also consider the potential threats to organizational resilience. Recall a time when an over-reliance on a tool backfired. Perhaps a tool update disrupted your entire financial reporting process, or maybe a software malfunction led to frantic last minute guesswork. Such instances are stark reminders that while these tools enhance our efficiency, total dependence makes us vulnerable.

First of all, we should ensure that our tech stack itself is resilient and has fast time to recovery. However, we ourselves need to remain adaptable and prepared for unexpected hiccups. Possessing business acumen and building trust are our lifelines, often helping us navigate complex situations using minimum viable solutions. Remember, precision isn't about 100% accuracy; it's about confidently communicating the range you believe in.

Future Prospects

As we look forward, the shift towards frictionless operations will undoubtedly continue. However, for FP&A professionals, the challenge isn't merely adopting every emerging tool or trend. It's about selecting innovations that truly enhance our value. Our aim should be to evolve from mere "dashboard monkeys" to genuine business partners. Indeed, while we should actively explore opportunities, we must acknowledge that the future will both diverge from our expectations as well as differ from our present reality.

The aim should be to spend less time on manual data transmission, more time engaging with the business to gain deeper insights, and consistently maintaining a balance between efficiency and genuine understanding. Is there value in struggling days to complete calculations in a financial model? Just as we value a meticulously crafted artwork that took years to create over a quick AI-rendered imitation, should we really boast about a cumbersome 180-day budget process? Perhaps not. Yet, a 30-second AI-generated company budget might bypass crucial learning experiences for a finance business partner. But what if a 30-second budget update is the future?

In conclusion, while we continue on a relentless pursuit of productivity, let's not forget the value that a little friction can bring to our roles. As FP&A professionals, where do you find this balance in your daily operations? What "frictions" have led to your most valuable insights? It's a thought worth pondering as we want to provide more value in our profession and new tools are shiny, aren’t they?

1

Belsky, Scott. “Our Declining Tolerance for Friction”, Substack 18 August 2023.

Implications, by Scott Belsky

Our Declining Tolerance for Friction & Wild Concepts Likely To Become Commonplace

Edition #9 of Implications. This edition explores forecasts and implications around: (1) our declining tolerance for friction as tech irons out the kinks of work and life, (2) what seemingly wild concepts today may pierce our daily lexicon over the coming decade, and (3) some surprises at the end, as always…

Read more

3 years ago · 32 likes · 1 comment · Scott Belsky

Introduction

Finance is in a constant evolution and some call it a transformation. Whatever the terminology, the shifting expectations mean that finance professionals need to move beyond the traditional hard skills of number crunching and data analysis. Today, FP&A professionals are expected to navigate a landscape that demands both technical proficiency as well as a well-honed set of soft skills.

The current blogpost draws heavily on two podcast episodes. The first is Tech for Finance Ep.034 with Gary Cokins [1] and the second an FP&A Today podcast episode Kenneth Fick: FP&A as Influence without Power [2]. Ideas drawn from Chris Ortega, Adam Shilton and others referenced accordingly below.

Skeptics argue that the core of finance revolves around hard data and concrete numbers in order to make sure that all the outcomes are accurate and therefore trustworthy. However, as Kenneth Fick articulates on FP&A Today, the ever-evolving business environment necessitates a symphony of soft skills such as communication, curiosity, and the ability to craft compelling narratives.

The complex, dynamic nature of today’s financial landscape requires professionals to not only analyze data but to draw insightful narratives from them, to ask the right questions, to envisage broader strategies and to communicate these narratives compellingly to a wider audience.

Skeptics adhering to outdated paradigms fail to recognize the transformative potential of integrating soft skills into the FP&A function. They are possibly tethered to the traditional conceptions of 'efficiency' and 'expertise' — terms which were largely synonymous with quantitative skill sets and the ability to navigate complex financial instruments and data sets with agility and precision.

The rise of finance as business partners, the expansive role of finance advice, and the pressing need for financial planning to be responsive to real-time changes and unprecedented crises like the COVID-19 pandemic, war in Ukraine and increasing number of climate related events highlight the inadequacy of a purely numbers-focused approach to the profession and skills requirements.

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The FP&A Landscape — Then and Now

Historically, yes, the FP&A function was heavily rooted in data analysis and financial reporting. The role was somewhat static, confined to rigid structures and focused solely on the numbers. However, modern FP&A professionals, as Gary Corkins emphasizes, must cultivate a flexible approach, ready to embrace change and adapt to the chaotic and dynamic business environment.

Chris Ortega builds on this as a guest in this episode of Role Forward podcast [3], illustrating that Financial Partnering and Advice (FPA) has become the new paradigm in the FP&A domain. Collaborative efforts and cross-functional partnerships forge a pathway to strategic, well-rounded financial planning, requiring both hard and soft skills.

According to Anders Liu-Lindberg in "Welcome to Finance Function 5.0” [4], the journey from Finance 1.0 to 5.0 has been a continual expansion of focus; from transactional roles to analytical, strategic, technology-driven ones, and now towards a role that is tasked with considering the societal impact of financial decisions. Continuing the evolution will be based on the synergy of hard and soft skills, combining data-driven insights with compelling narratives that resonate emotionally with a broad spectrum of stakeholders.

Demystifying Soft Skills in FP&A

Financial Planning and Analysis (FP&A) transcends beyond rigid numbers and data metrics. Soft skills are becoming ever more valued to steer business towards strategic goals. Expert voices in the industry, such as Gary Cokins and Kenneth Fick, echo the sentiment that the modern FP&A professionals should be adept at sculpting narratives that provide not just insights but actionable recommendations derived from a deep understanding of the business landscape. Accordingly, soft skills are pivotal in addressing the unforeseen questions, offering detailed explorations and fostering a broader outlook. Without relevant questions and capability to ask them in an open way, FP&A cannot provide the value that business needs.

Furthermore, the art of storytelling is becoming ever more valued with stakeholders accustomed to appealing narratives from everywhere “other than finance”, requiring professionals to harness their communicative (soft skill) capabilities to craft narratives beyond data. FP&A needs to not be afraid or ashamed of imperfections in the data, rather turn these into an advantage based on curiosity rather than stringent “criteria”. Fostering a culture that values listening and learning in forecasting will add more value and relevant timely information for decision making compared to ensuring being strictly right. Hence, the FP&A is about offering more than just numbers but stories that shape and narrate the path to success.

From Data to Actionable Insights

In a world overwhelmed with data, FP&A professionals are tasked with the monumental role of not just presenting data, but transforming it into actionable insights that steer strategic decisions [2]. This transformation is not just a mechanical translation but a deeply investigative process, often requiring a nuanced understanding of both the data and the broader business context.

The cultivation of soft skills, including influence and communication, is crucial to rise to the challenge. It is these skills that enable you to delve beyond surface-level data, fostering a curiosity that seeks to unravel the intricacies of business dynamics and offer grounded, insightful recommendations [2]. Kenneth Fick advocates for an approach that is based on understanding the functioning of the business, which is imperative to be able to transition from raw data to comprehensive, actionable insights.

Going further, it is not only about turning data into insights but also portraying it effectively. Leveraging the insights from Gary Corkins [1] and Chris Ortega [3], we find that FP&A professionals must be skilled at creating narratives from numbers, telling stories that resonate with stakeholders and prompt decisive actions. At the same time, this transition from data to a narrative relies on a profound understanding of statistical analysis — an area that despite discussions around soft skills remains largely untapped as well. Leveraging imperfect data, and being prepared to work with what is available rather than waiting for the perfect dataset, becomes an invaluable strategy in this context, but you need to know how to interpret the “bad” data to not create erroneous insights.

Soft Skills in Action – The Art of Storytelling

The art of storytelling emerges as a vital tool in the FP&A toolkit. It’s about crafting narratives that offer deeper insights and drive home the salient points effectively, thereby transcending the boundaries of mere data representation. This approach calls for a readiness to work with imperfect data and harness one's curiosity to carve out reliable insights through a flexible approach, leaning more towards inquiry than rigid structures [2]. By weaving data into a narrative, FP&A professionals guide stakeholders through complex financial landscapes, emphasizing key points and offering a more comprehensive view of the prevailing business trends. The narrative approach facilitates understanding and aids in making grounded decisions.

Drawing upon insights from Chris Ortega [3], it becomes apparent that crafting narratives isn't solely about presenting data but is significantly about financial partnering and providing substantial advice based on well-articulated insights. This depth of understanding enables financial experts to craft stories that not only illustrate the present scenario but also project potential futures, offering a roadmap for sustainable growth.

Soft Skills in Practical Applications – Leveraging ChatGPT

FP&A professionals have a potent tool at their disposal — Generative AI. Analysts do not need to wonder what it means when they get feedback that they need to use soft skills or what is the algorithm to use to be the business partner that is expected from them. The open ended questions or the inquisitive, but kind, approach to bring out the real needs and expectations of business can be drawn out from the tools we have at our disposal.

One effective framework that I’ve recently come across is SPICES devised by Adam Shilton [5]:

[S] - Scenario
[P] - Profile
[I ] - Information
[C] - Command
[E] - Example
[S] - Structure

Drawing on this, including further examples from Adam’s other materials, I compiled the following prompt template for finance professionals to draw out their soft skills. Sections eluding to utilization of soft skills in bold:

You work as a [specify your role, e.g., financial analyst] in a [specify the company profile, e.g., leading European retail bank]. (Scenario + Profile)

You are tasked with [detail the task, e.g., modeling scenarios for a management meeting concerning a crucial pricing decision] that has a substantial effect on [mention the areas impacted, e.g., the bank's profitability and public perception]. (Information)

Please ensure that the [specify the deliverable, e.g., model] is pertinent to the industry where applicable. Furthermore, craft it with a storytelling approach to facilitate understanding and engagement from non-finance professionals. Emphasize the narrative behind the numbers, showcasing potential paths and solutions, rather than just presenting data. (Information + Command)

Please produce (Command + Structure):

• A set of 5 questions to be posed to your business counterparts to expand on their needs and requirements. Focus on getting to the why and value. Be curious and open, encouraging them to share not only what they think they want from you but also insights and narratives that will guide the analysis.

• Create 3 potential outlines for the [specify the type of model, e.g., financial] model, each reflecting different degrees of adaptability to changing market conditions.

• Develop 3 potential outlines to portray the impacts of the scenarios, envisioning both optimistic and pessimistic outcomes, and emphasizing the narrative behind each scenario.

• For each presentation outline, devise a set of 10 slides, where each slide narrates a part of the story, providing to stakeholders the impacts in a visually appealing way.

• Each slide should encapsulate 5 bullet points that underline the key discussions or conclusions, fostering a conversation that is grounded in data yet open to insights and interpretations.

Before you carry out this task, please clarify whether you understand the task, and suggest ways this instruction can be altered for you to produce the best possible output.

Conclusion

As we are evolving and transforming towards Finance 5.0 or to Finance Partnering & Advice, a balanced focus on hard and soft skills will enable us to thrive in our roles. The expert insights in this blog post underline a critical role for finance professionals of the future: to be adept storytellers who can craft compelling narratives.

To be slightly poetic, these professionals are not just number crunchers; they are artists weaving stories through a tapestry of data, ready to unearth pathways laden with rich insights. I believe that thriving in the evolving finance profession necessitates a duality of approach. It demands an ability to resonate not merely through numbers but through the rich narratives that embody them, enabling us to create a more nuanced understanding of the business landscape we navigate.

References

[1] G. Cokins, "Moving from Opinion to Facts in Reducing Business Risk," Tech for Finance Podcast Ep.034, August 22, 2023.

[2] K. Fick, "FP&A as Influence without Power," FP&A Today Podcast, June 21, 2022.

[3] C. Ortega, "Financial Transformation in Finance’s Golden Age with Chris Ortega of Fresh FP&A," The Role Forward: A Strategic Finance Podcast, 13 February 2023.

[4] A. Liu-Lindberg, "Welcome to Finance Function 5.0," LinkedIn Pulse

[5] A. Shilton, “SPICES: A 6 Part ChatGPT Framework,” LinkedIn, August 2023.

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The Strategic CFO

A popular consensus is that from the conventional roles associated with transaction processing and statutory reporting, finance teams are now seeking to become central strategic partners. Overall, finance transformation is driven by an array of internal and external factors [3], but ultimately the CFO is at the forefront.

Although historically their main tasks revolved around accounting, reporting, and controls, modern CFOs are redefining their roles. They have progressed from being just stewards to crucial strategic partners actively involved in significant business initiatives[4]. As Hope describes, conventional methods that overly emphasize strict financial results management can inhibit innovation[5]. Addressing this, modern CFOs champion lean systems that encourage decentralized decision-making within well-defined guidelines.

However, this strategic shift poses challenges. Taking a more comprehensive role offers multiple benefits such as finding new business value and strategy alignment, it also brings up concerns about maintaining objectivity and independence[5]. Navigating this balance is imperative.

Evolving Skill Sets and Focus

Transitioning to strategic leadership calls for the redefinition of skills within finance teams. Beyond technical expertise:

• Modern finance roles require effective communication

• Building robust relationships, particularly with senior stakeholders, is essential[5]

• Talent management's significance cannot be overstated, emphasizing strong ties between Financial Planning & Analysis, accounting, and other teams[6]

• Streamlining tasks, employing shared services, and self-service reporting are pivotal to concentrating on strategic objectives[5].

To track this evolution, Hope proposes metrics that include:

• the balance of time spent between decision support and operations

• the internal vs. external focus of measures,

• the quality and speed of predictions, and

• stakeholder contentment with finance services[5].

Process Transformation

Revamping finance also requires a reexamination of core processes, especially the second pillar of finance: FPA, namely planning and budgeting[5]. Ajay Vashee, Former Dropbox CFO, cites in this journey the need for a cultural shift that emphasizes strategic disruption and continuous transformation[7]. Traditional yearly plans, which frequently become outdated swiftly, ought to be replaced with more adaptable quarterly rolling forecasts[5]. Furthermore, Vashee stresses the importance of using finance tools that boost usability across various departments to foster collaboration[7].

Partnering with the Business

The success of finance's transition to a strategic role relies on collaboration with business as a whole[3][5]. One of the mindset shifts is moving from Financial Planning & Analysis to "Financial Partnership and Advising." [6] Plans are only as good as the insights they bring and this change fosters a collaborative strategy, strengthening ties between FP&A and other organizational teams as well as accounting [7].

Rather than imposing decisions, finance needs to play a partnering role, guiding business choices without overshadowing them. However, finance shouldn’t “serve” business, finance needs to be the intelligent discussion partner that both challenges and enables business. On the efficiency side, reducing month-end closes to 2-3 days frees finance up for taking the role of strategic partner and providing guidance. Technological advancements will not take away finance jobs, they will enhance these.

A more active role through better understanding and a proactive approach may include as an example encouraging sales teams to have consistent contract payment terms help stabilize cash flow, further strengthening finance positioning as a strategic enabler, not as a compliance function [7].

Sustaining Change

Transformation in finance may be compared to running consecutive sprints within a marathon. Changes demand persistence as well as agility. Embracing change doesn't mean adopting a top down plan; instead, it involves continuous feedback, learning from past endeavors, and refining approaches[3][5]. An articulated vision, backed by clear communication and urgency, is vital as well.

It’s also essential to understand the users' needs and determine how finance can effectively support business achievements. Think of jobs to be done as opposed to trying to find a nail to hit with your finance hammer. Ajay Vashee underscores the value of incentivized transformation. By setting benchmarks around the hours saved via automation, and recognizing team members' ongoing efforts, finance departments can maintain momentum and instill a culture of consistent enhancement[^7].

In Conclusion

Every successful transformation journey has a set of critical success factors as well as roadblocks to overcome. One of the concepts that is both easy to remember and rings true, is thinking about FPA as "Financial Partnership and Advising”. [6] Continuous learning through an iterative approach will enable the transformation journey to remain relevant also in the ever-evolving landscape. Through strategic modifications in systems, skills, and mindsets, finance leaders can transform themselves and their teams into adaptable, business-focused strategic partners.

References:

[1]: A. Liu-Lindberg, "Welcome to Finance Function 5.0," LinkedIn Pulse, [Online] [Accessed: 25 August 2023].

[2]: "Iatrogenics: Why Intervention Often Leads to Worse Outcomes,” Farnam Street Blog, [Online] [Accessed: 20 August 2023].

[3]: A. de Waal et al., “Removing the barriers on the way to European high-performance finance functions,” Problems and Perspectives in Management, 2019.

[4]: H. L. Friedman, “The strategic CFO? Implications of the CFO's role and responsibilities,” 2014. [Online]. Accessed on: Aug. 20, 2023.

[5]: J. Hope, Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value. Boston: Harvard Business School Press, 2006.

[6]: C. Ortega, "Financial Transformation in Finance’s Golden Age with Chris Ortega of Fresh FP&A," The Role Forward: A Strategic Finance Podcast, 13 February 2023.

[7]: A. Vashee, "The Art of Finance Transformation with Former Dropbox CFO Ajay Vashee," The Role Forward: A Strategic Finance Podcast, 13 October 2021.

Introduction

Based on reading lately books such as 'The Lean Startup,' 'Mythical-Man Month,' and 'High Growth Handbook,' I have become increasingly convinced of the need to view Financial Planning & Analysis (FP&A) as a product, rather than a project or regular activity. In this post, I aim to clarify my thinking on the main concepts of Lean Startup and it’s potential connection to FP&A, what is a product from FP&A perspective and how in the FP&A function we can utilize the principles for common benefit.

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Section 1: FP&A and the Lean Startup Model

Despite its analytical prowess, FP&A often seems stuck in a reactive mode, lacking adaptability and connectivity with real business. As discussed in a previous post, agility is a valuable trait for FP&A.

The Lean Startup by Eric Ries resonated with the same theme from a more practical angle of having an iterative approach both as a general Build-Measure-Learn cycle as well as thinking through the value of our deliveries from user perspective based on the following four questions:

1. Do customers (internal or external) recognize the problem we're trying to solve?

2. If there were a solution, would they use it?

3. Would they use it from us?

4. Can we build that solution?

In an era where business environments constantly evolve, FP&A must also evolve its “product offerings”. Of course, first, taking ownership of the deliveries and then keeping in mind that at the end of the day also finance should think about in the lines of “not just doing things right, but doing the right things”.

Section 2: Amplifying Value through Product Ownership

Traditional FP&A processes, often felt to be 'in place,' are usually followed based on project management thinking. However, the absence of clear ownership and mandate leads to stagnation. FP&A shouldn’t only focus on fine-tuning timing and coordination (the short term); it should also take the time and effort to discuss and consider what would drive maximum value for the business, to think what is important for the strategic direction. The long term will become the short term sooner than one often expects.

Product ownership in FP&A involves understanding the evolving needs of the business, leveraging technological developments, and nurturing the necessary skills over time. By this, one takes ownership of the vision and a real roadmap, not just what we will do in the current planning cycle. This approach takes inspiration from product lifecycle management with continuous iteration and feedback to enhance value delivery.

Section 3: Achieving Speed and Accuracy via Iterative Processes

An argument often made in IT development—speed versus accuracy—is prevalent also in FP&A discussions. Instead of accuracy perhaps even certainty comes to mind. However, like IT, this is a false dichotomy.

FP&A can and should adopt small, iterative changes that enable accuracy validation (and correction). Trying to make sure that all assumptions are correct, because nobody will have time to run multiple iterations of a model is not a recipe for having relevant insights in a ever-changing landscape.

Changes in mindset, tool usage, and skills are necessary for this shift. An iterative, hypothesis-based approach is needed to ensure transparency, accuracy, speed, and alignment with business needs in the FP&A function.

Section 4: A Customer-Centric Approach for Enhanced Stakeholder Alignment

Traditional FP&A processes sometimes falter in aligning with internal stakeholders' needs. Viewing internal stakeholders as customers can help FP&A adopt a customer-centric approach. Instead of solely focusing on efficiency, it's crucial to consider what valuable, actionable insights FP&A can provide to its customers.

Embracing a mindset that prioritizes developing what is relevant for customers, instead of maintaining existing solutions, will require a shift in mindset and skillset. Even if one understands that only 10% of the entire process today provides real value, it may take an outsized effort to untangle and decommission the legacy solution, which ultimately can be taken on only with a product ownership mindset.

Furthermore, such a change cannot be carried out by a single analyst—it needs to be endorsed throughout the finance organization with a clear strategy.

Section 5: Becoming an FP&A Product Owner: The Path Forward

One of the clearest descriptions of Product Owner skillset I have lately seen is by Elad Gil in his book, 'High Growth Handbook':

1. Product taste

2. Ability to prioritize

3. Ability to execute

4. Strategic sensibilities

5. Top 10% communication skills

6. Metrics and data-driven approach

Transitioning to a product mindset will require FP&A professionals to rethink their role from scratch. One will need to develop a clear vision for their 'product' today, tomorrow, and in the future out and above of “providing accurate numbers”.

The role of an FP&A product owner will be that of an evangelist, an intrapreneur. By taking on this role, FP&A professionals can expand their skills to align with modern ways of working and remain abreast of new trends, and not leave the exciting new trends only to the business or IT side of the organization.

Conclusion

When we reimagine our FP&A deliveries as products and embrace a product ownership mindset, we unlock the potential for providing long term value for our business partners. Being a product owner will bring FP&A closer to the ever-changing needs of the business, fostering a deeper understanding of their needs rather than just focusing on what appears interesting for us.

The Lean Startup Model of Build-Measure-Learn cycle enables thinking about our deliveries as iterative MVPs that will enable to take a customer-centric view, including whether what we believe is valuable truly brings added value to the decision-makers.

From our own perspective, this transformation into FP&A product owners enables us to enrich our skills, embrace modern ways of working, and stay on top of technological trends. Change invariably presents challenges, but transitioning to a product owner mindset offers a unique opportunity: to evolve the role we enjoy and elevate its value for the benefit of profitable growth.

Introduction As we’re entering a new bank earnings season, we're set to see how Net Interest Margins (NIMs) have developed in a landscape where deposit prices are on the rise and the proportion of non-interest bearing deposits is declining. Amidst this volatility, and as central banks juggle skipping, pausing, or sustaining heightened levels for extended periods, a shift in mindset is vital for the finance and FP&A function within banks.

In this scenario, the financial teams within banks need to adapt and think in new ways. It's not just about working faster, but working smarter. We need to identify what's really important and share this understanding with the wider business.

That's where the idea of First Principles Thinking comes in. It's a way of looking at problems that cuts through the noise to what's fundamental. In this blogpost, I aim to clarify my thoughts on how we can use this approach to give businesses a clear view of what they might expect in different scenarios, helping to guide their decisions in these uncertain times.

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Section 1: Understanding First Principles Thinking I like the concept of "First Principles Thinking", but what can it mean when applied to finance. How can we balance being data-driven with a need to sometimes ignore past trends to stay relevant in an ever-evolving market?

First Principles Thinking provides a mindset to challenge our foundational beliefs, dissect complex problems into their core elements, and formulate innovative solutions based on these fundamental truths. It encourages us to navigate beyond historical data and conventional wisdom, a strategy particularly useful in unpredictable environments where a reliance on past trends may lead to erroneous forecasts.

For instance, let's view forecasting through the lens of First Principles Thinking. Rather than attempting to predict the future with absolute precision—a futile endeavour in the current phase of the market—this approach suggests we view forecasts as compasses, not crystal balls. Advocated by thought leaders like Shane Parrish on Farnam Street, such a perspective guides us through the intricacies of the financial landscape, illuminating key drivers and potential shifts.

In essence, by adopting First Principles Thinking, we shift our approach to forecasting. We move from striving for perfect prediction to understanding the dynamics of our market, contemplating potential changes, and providing decision-makers with a well-rounded view of the possible scenarios. This approach equips us to navigate the dynamic environment of finance with agility, foresight, and strategic insight.

Section 2: Embracing Agility in FP&A I’ve experienced that Financial Planning & Analysis (FP&A) is seen as a somewhat passive function, focused on reporting and data analysis. However, introducing an agile mindset can transform FP&A into a proactive, learning-oriented business partner. Agile forecasting isn't about achieving perfect forecast accuracy, but about understanding key business drivers and potential market shifts.

This shift towards agility is a holistic approach that includes taking into use the technical capabilities of the tools you have in the organization, as well as combining empathy and data focus. In order to be successful, your team should be on the same level in values, behaviours and skills, from which especially areas such as data literacy, storytelling and strategic decision-making, are highlighted by McKinsey.

Both McKinsey and Gartner's 2023 Leadership Vision for FP&A advocate for agility in FP&A. They suggest that an agile FP&A function is more closely aligned with broader business objectives, offering the necessary tools to navigate the changing business landscape. Agility in FP&A providing robust decision-making support, helping organizations flourish in volatile markets.

Agile FP&A also resonates with one of Gartner's identified priorities - the elevation of finance's role in integrated business planning. This involves defining, achieving consensus on, and driving accountability for actions with financial implications. When finance becomes a proactive player in business planning, it can bridge any gaps and ensure alignment with overall business goals. See for example two resources from the Business Partnering Institute: the Planning and Forecasting Manifesto and the FP&A section in their CFO Guide to Managing the Finance Function.

By embracing this strategic shift, FP&A can facilitate more objective, value-driven decision-making, fostering a company-wide culture of learning and iterating. In essence, agile FP&A shifts from a mere reporting function to an active partner in strategic planning and decision-making, thus contributing significantly to business success.

Section 3: The Intersection of First Principles Thinking and FP&A

Merging First Principles Thinking with Agile FP&A unlocks a powerful synergy that reinforces our adaptability and strategic foresight. It amplifies our capacity to not only anticipate but also respond effectively to the dynamic market trends.

The core of this synergy lies in using First Principles Thinking to break down and understand complex financial issues. This methodology encourages us to question traditional assumptions, making it possible to craft fluid, adaptable strategies rather than clinging to rigid, outdated practices.

Agile FP&A, with its focus on understanding market dynamics over striving for perfect forecast accuracy, complements this perfectly. By embracing this combined approach, our forecasts transition from attempting precision to acting as guides that help us navigate market complexities and inform our strategic decisions.

In essence, synergizing First Principles Thinking with Agile FP&A enhances our ability to understand, learn, and adapt amidst market volatility, making our FP&A function not just resilient but also a driving force in navigating business uncertainties. By this, we elevate our financial planning from a reactive process to a proactive strategic function.

Section 4: Using Feedback for Continuous Organizational Learning Peter Senge's "The Fifth Discipline", a source of inspiration I use in every other post, focuses on the power of continuous learning, a foundation for having agility and innovation in FP&A. The concept of continuous learning emphasizes the need for progress over perfection and iterative thinking.

Among the concepts that I especially appreciate from the book are feedback loops that are crucial catalysts for evolution, enabling us to refine our forecasts and strategies. By having conscious feedback loops in place, we can measure the impact of our approaches, identify potential gaps, and evolve our methods accordingly in order to ensure we are relevant and impactful.

By embracing continuous learning and fostering feedback mechanisms, we transform our FP&A function into a strategic asset, capable of driving resilience and adaptability in changing market conditions.

Conclusion In an era marked by volatility, traditional roles and assumptions within the FP&A function must evolve. This transformation can be achieved through the integration of First Principles Thinking and agility, establishing a culture centered on continuous learning.

By adopting the Scout Mindset, which urges us to pursue truth and challenge existing norms, we can enhance the resilience and relevance of FP&A functions. This mindset can help us explore new territories, test assumptions, and refine strategies based on feedback.

Thus, the call to action for FP&A professionals is to become not just financial stewards, but 'scouts' for their organizations, guiding the way towards strategic growth in a continually evolving market landscape. Embrace this mindset shift and step up to the challenge. Paraphrasing one CFO thought leader “FP&A used to record history. Now they make history.”

Introduction

Earlier this week, I attended a webinar titled "The Future of Finance: 7 Tips for Navigating Tech Opportunities and Risks". The session underscored the need for financial operations to transition from manual processes to value-added activities for the business at large and even more the analysts involved. As I reflected on the webinar, I wanted to elaborate on the idea of our future through linking the themes to some of the books I've read over the past year.

In the dynamic landscape of today's finance, competitiveness, swift decision-making, and elevated stakeholder expectations are critical. For organizations to succeed, the development of a learning culture as per the concept of systems thinking in Peter Senge’s "The Fifth Discipline" that embraces digital transformation, automation, and data literacy is paramount.

Through this blogpost, I’ll consider the drawbacks of traditional manual processes, and explore how automation and data literacy could pave the way towards greater value added and agility in finance.

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I. The Problem: Manual Processes in Finance

Manual processes, despite their long-standing role in finance and in the FP&A function, are increasingly becoming a roadblock in the ever-faster changing environment where speed and agility have become paramount. This issue can be likened to a concept drawn from Meadows' "Thinking in Systems: A Primer" – feedback loops.

In system dynamics, feedback loops provide a way to understand how changes in one component of the system affect the other components. In a positive feedback loop, change in one direction causes further change in the same direction, amplifying the effect. In a negative feedback loop, change in one direction prompts change in the opposite direction, thus creating a stabilizing effect.

Drawing a parallel with finance, manual processes often create a negative feedback loop, constraining the system's potential. These processes slow down response times, hampering the system's ability to adjust swiftly to business needs. As a result, resources that could otherwise be utilized for strategic, value-added work are tied up in labour intensive tasks creating tension between stakeholders.

In the age of digital transformation, these feedback loops underscore how manual processes, like the weakest link in a system, can hold back the entire operation and as such does not allow to gain the needed insights everybody needs. Through this lens, it becomes clear that the transition away from manual processes is not just beneficial – it's essential for survival and growth in today's ever-faster changing environment.

II. The Opportunity: The Rise of Digital Transformation

The emergence of digital transformation promises to be the lifeline to those stuck in the manual processes. Automation and data literacy are two of the oft-mentioned tools in this transformation, even if the pace of adoption and the ability to leverage them differ across organizations.

Yet, beyond the realm of technological solutions, there's another, even more fundamental avenue for change - our mindsets. Here, the concept of the 'scout mindset' as articulated by Julia Galef in her seminal work offers a valuable perspective.

In contrast to the 'soldier mindset', which is geared towards defending one's beliefs, the scout mindset values truth above all. Scouts are intrinsically motivated to gather information, even when the facts might prove their existing assumptions wrong. They're open to reevaluating their beliefs and enjoy the process of discovery.

Applying the scout mindset to us as finance professionals allows to step away from the familiar, sometimes limiting, confines of traditional practices and to actively seek out more effective, innovative solutions. This approach embraces iterative learning and change, two aspects crucial in navigating the shifting landscapes of digital transformation.

Considering the mindset shift will not solve all the challenges while it does enable navigating this journey of transformation not as passive passengers, but as active explorers, harnessing the tools of automation and data literacy to chart a course towards more value adding work.

III. The Need for Data Literacy in the Digital Era

As the digital age advances, data literacy—defined as the ability to read, analyze, and communicate data—has become an increasingly crucial skill. We are living in a digital age in our personal lives, which promises benefits also into our FP&A work.

From FP&A perspective, the transition to digital operations brings an exponential growth in data. From using the current tablestakes data warehousing opportunities for analytics, advanced analytics tools, predictive models, and AI are becoming said to become more and more commonplace, turning data literacy from a luxury into a necessity.

Data literacy enables finance professionals to not only understand and interpret data but even more importantly to make informed decisions and strategic recommendations based on these insights - to be the business partners, not number ATMs. It ensures that teams can leverage data effectively to bring out meaning from the trends, conduct scenario analyses, and identify opportunities for growth and innovation (yes, innovation). It allows organizations to turn financial data from a simple by-product of operations into a strategic asset.

This shift towards data literacy mirrors the concept of a growth mindset, as explored by Carol Dweck. A growth mindset views abilities and intelligence as qualities that can be developed through dedication and hard work. It cherishes learning, embraces challenges, and perceives effort as a path to mastery.

When applied to data literacy, a growth mindset helps individuals and teams to recognize the potential in leveraging data for decision-making, and to understand that their skills and proficiency in this area can be developed over time.

IV. The Solution: Embracing Automation in Finance

Automation—the use of technology to execute tasks with minimal human intervention—marks a revolutionary shift in the finance function, not unlike the transformation in IT operations depicted in "The Phoenix Project".

In traditional finance settings, analysts often spend a significant portion of their time on routine tasks—consolidating data, preparing reports, inputting numbers into shared spreadsheets and different forecasts. Such manual processes not only consume valuable time but are also susceptible to human error and resulting frustration. This is where automation steps in as a transformative solution.

With automation handling routine processes, finance professionals find themselves with more time to focus on exploring and interpreting the data, deriving insights that can drive informed business decisions. They can leverage their expertise to analyse complex data sets, spot trends and anomalies, and predict future outcomes.

For organizations, automation signifies much more than just efficiency and cost-savings—it's an enabler of strategic agility and competitiveness. By speeding up processes and enhancing accuracy, automation empowers organizations to respond swiftly to business needs and market changes in order to maintain a competitive edge in the rapidly evolving business landscape.

In essence, automation is not just about replacing manual tasks with machines. It's about augmenting human intelligence with machine efficiency, empowering finance professionals to transition from data handlers to strategic advisors.

V. Navigating Challenges and Building Agility in the Face of Change

In the quest to improve data literacy and implement automation, we will need to take into account the challenges that range from cultural shifts to technology adoption and skill development. In essence, the transition would not be just about implementing some new software, it’s even more about changing mindsets and the value that the change can bring.

The cultural shift around mindset is about creating an environment where curiosity, questioning, and data-driven decision making are encouraged and rewarded.

Next, we can’t avoid the neverending challenge of technology adoption. Implementing new technologies is disruptive and therefore creates justified resistance. Hence, in any transformation, the theme cannot be about just adopting the latest technology (every other year), but determining which technologies bring the most value to the organization. As emphasized also in "Peopleware," the focus should be on how these tools can better serve our people, improve processes, and ultimately contribute to achieving our strategic goals.

At the heart of these challenges, however, lies the solution - our people. As Peter Senge argues in "The Fifth Discipline," successful learning organizations are those where people are continually learning how to learn together. In this context, fostering a learning culture becomes critical. We need to promote a culture where our teams feel empowered to learn new tools, embrace new skills, and adopt new ways of thinking.

VII. Conclusion

Digital transformation isn't a walk in the park. It's about shifting mindsets, making smart tech investments, taking time to shift to new tools and creating a culture that's all for learning and change. "Peopleware: Productive Projects and Teams" described it well when they pointed out how investing in people and the tools they use can truly shape an organization's success.

What does that mean for us? It's about nurturing an environment where data literacy is valued, new tech tools are embraced despite difficulties in transitions, and we have put value before efficiency gains. With the right strategy and an open mind, we're not just enhancing our business - we're creating an environment where our teams can learn and grow.

References

1. Senge, P. M. (2006). The Fifth Discipline: The Art & Practice of The Learning Organization.

2. Meadows, D. H. (2008). Thinking in Systems: A Primer.

3. Galef, J. (2021). The Scout Mindset: Why Some People See Things Clearly and Others Don't.

4. Dweck, C. S. (2006). Mindset: The New Psychology of Success.

5. Kim, G., Behr, K., & Spafford, G. (2018). The Phoenix Project: A Novel about IT, DevOps, and Helping Your Business Win.

6. DeMarco, T., & Lister, T. (2013). Peopleware: Productive Projects and Teams.

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A short while ago I wrote down some thoughts on organizational learning and the strategy process. In today's blogpost I aim to write down some thoughts on finance function's role in supporting innovation and business model transformation.

We are operating in changing times. Interest rate environment has changed completely in a year, there are many possible paths that the economy might take in the near term as well as neither our main competitors nor fintechs are sleeping. Given the complex landscape, we in finance are uniquely positioned to guide the organization through the changes. In this post, I'll explore ideas on finance's expanding responsibilities and possibilities of taking a role in driving innovation and steering business model evolution.

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Understanding the Finance Function

Historically, finance was about managing a company's finances - financial planning and analysis, treasury, audit, and investor relations. However, in line with Gartner's observations, finance's role has significantly transformed, largely due to technological advancements and increasing complexity of business operations. I believe that our finance function is seen as a strategic partner across the business, as we support business strategy, and provide relevant insights.

The Necessity of Innovation and Business Model Disruption

In the words of Clayton Christensen, disruption is a process, not an event. It challenges established industry norms and creates new opportunities. For us to stay competitive in, we need continuous innovation and a willingness to disrupt our own business models. As the largest bank in the region, we remain focused on our core business. However, we need to be ready to disrupt ourselves when circumstances require.

Bringing in an example from the Harvard Business Review, we must foster a culture of innovation and reinvent ourselves to stay ahead of competition.

Finance as the Catalyst for Innovation

As McKinsey implies, the finance function should play a central role in driving innovation. Finance serves as a strategic partner that enables and drives change by effectively allocating resources. As the gatekeeper of resources, finance can transform from being perceived as the skeptics into an innovation enabler, fostering an environment where innovation is woven into the company's fabric, contributing to sustainable, consistent, and capital-efficient growth. By using financial modeling, finance can assess potential return on innovative projects and ensure accountability and learning through tracking and analyzing results.

One clear example of the finance function driving innovation is Google's '20% time' policy. The finance function facilitated this innovative approach by dedicating 20% of engineers' time to side projects, which led to the development of some of Google's most successful products, such as Gmail and AdSense.

Finance at the Forefront of Business Model Evolution

With a holistic view of our organization, our finance function is primed to lead business model evolution. Aside from supporting business in calculations around revenue potential, we can identify areas where disruption can create value, guide resource reallocation, and manage the financial risks associated with change.

As Peter Senge underlined, companies must learn to adapt and change their business models to survive. We in the finance function can steer this learning process in the planning process, proposing financial models that show alternative paths take and support business ideas with financial insights during the process.

CFOs, with expanded roles and faster strategic decision-making, are pivotal in driving business model innovation. This report by Accenture highlights overcoming the decision-making "paradox of choice", balancing regular and transformative efforts, and focusing on execution to unlock value from enterprise reinvention

The Challenges and the Road Ahead

Embracing a non-traditional role is not without its challenges. It requires a shift in mindset, new skills, and likely implementing new tools and processes. According to Gartner, these challenges can be overcome with continuous learning, technology investment, and fostering a culture that embraces change.

The future of finance is promising, with its role extending into strategic decision-making and business model innovation. It's exciting to be a leading force in driving change, fostering a culture of innovation, and ensuring sustainable growth.

To accommodate these changes, any finance function will need to continue investing in technology and the people. As McKinsey suggests, finance professionals will need to take on a more forward-looking and strategic approach, providing faster and richer insights supporting dynamic decision-making.

Conclusion

The evolving business landscape necessitates a shift in the finance role from a traditional number-oriented perspective to a more strategic and forward-thinking one. Amid rapid technological advancements and business complexities, we in finance stand at the center of steering our organization towards innovation and business model disruption.

However, harnessing the full potential of our role requires us to overcome challenges through continuous learning, investment in technology and people, and fostering a culture of innovation. As we adapt to these changes, finance is set to play an increasingly strategic and integral role in business innovation and disruption, making this an exciting time to be part of the finance function.

Introduction: Unleashing Organizational Creativity Boosting organizational performance and sparking creativity often hinges on the overlooked power of everyday tools: templates and defaults. Recently, I've been thinking about the balance between standards and templates, and the role of structured thinking in decision-making. Consequently, this week's blogpost centres around this topic.

At the heart of a thriving creative environment are well-structured systems, structures, frameworks, and processes – our 'defaults'. These defaults shape our workflow, foster teamwork, and influence decision-making. They construct a platform that allows teams to focus their cognitive efforts on innovation and creative problem-solving.

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In preparing this blogpost, I was able to draw on the books I’ve read in the last years.

Checklists and Organizational Benefits In many ways, the benefits of defaults are like the benefits of checklists, as championed by Atul Gawande in "The Checklist Manifesto". In the same way that a pilot's checklist streamlines operations and reduces errors, defaults in organizational processes can streamline workflows, align efforts, and reduce cognitive load.

The Manager's Toolbox Defaults serve as the manager's toolbox. As Andy Grove discusses in "High Output Management", one of the key responsibilities of a manager is to establish the right system. A well-designed default process serves as the scaffolding, providing the structure that supports the organization's creative efforts. It frees team members from the mental load of navigating ambiguous systems or designing their own processes, allowing them to focus more on creativity and problem-solving.

"Efficiency is doing things right; effectiveness is doing the right things." - Peter Drucker

Designing Versatile Systems But defaults aren't one-size-fits-all. As Donella Meadows explores in "Thinking in Systems", systems need to be carefully designed and continually adjusted to remain fit for purpose. The system must align with the mission and strategy of the organization, much as Richard Rumelt outlines in "Good Strategy Bad Strategy". Systems must remain open to feedback, allowing organizations to respond effectively to changes in the environment.

Systems Thinking and Learning In "The Fifth Discipline", Senge emphasizes the power of systems thinking that sparks organizational learning. He suggests that managers need to understand the interrelationships between different components of their organization, rather than seeing them in isolation. Default processes and templates allow individual teams to take the system complexities into account without needing to spend their creative energy on mapping out all the potential interconnected stakeholders.

Making Implicit Structures Explicit Claire Hughes Johnson's "Scaling People" provides a detailed roadmap for managers of managers, focusing on creating the right systems and structures for teams to flourish. Like an artist needing cheap turpentine to clean brushes and prepare the canvas, a manager needs these frameworks to create an environment where creativity can thrive. The notion of making implicit structures explicit, as Johnson argues, enhances transparency and enables the team to work within a common understanding.

Defaults as Learning Tools A robust default process or system can serve as a powerful learning tool. When best practices are incorporated into the system, they become part of the organizational DNA. This is the same principle that drives Stripe's OKR and QBR guidelines (written about in Scaling People), which codify effective goal-setting and review practices into a template that all teams can follow. This practice echoes the themes in "Super Thinking: The Big Book of Mental Models" by Gabriel Weinberg and Lauren McCann, where the power of mental models and shared knowledge are emphasized for decision-making and problem-solving.

"The world is full of problems to solve. The frameworks you use to solve these problems spark the next set of problems." - Daniel Ek, CEO, Spotify

Balancing Uniformity and Variability Documenting and communicating structures turns them into defaults or templates that can be easily replicated and scaled as the organization grows. And then there's the balance between uniformity and variability. Too much uniformity can lead to stagnation, while too much variability can result in chaos. One shouldn’t still prefer chaos over clarity. Defaults and templates can offer a middle ground, providing enough structure for efficiency and consistency, but also enough flexibility for innovation and adaptation.

Writing: The Undervalued Skill Similarly, defaults and templates also offer a standardized mode of communication. Writing is often an undervalued yet vital aspect of organizational functioning. As Eeke de Milliano states about Stripe's writing culture in Scaling People and this podcast episode, writing can be an equalizer, enabling clear, efficient, and inclusive communication. This mirrors the ideas presented in "The Scout Mindset" by Julia Galef, wherein rational, clear thinking and communication aid better decision-making.

"Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.” - Steve Jobs

Designing Defaults to Foster Creativity However, a key tenet in designing defaults is ensuring that they don't stifle creativity. Frederic Laloux, in "Reinventing Organizations", puts forward the idea of evolutionary purpose, where organizations are viewed as living entities with the capacity to evolve creatively beyond their current form. To do this, constraints are needed, but the right kind. These constraints should act as boundaries that focus energy and attention, not as suffocating rules that limit possibilities. The concept of "bounded creativity" suggests that certain limits can, paradoxically, free up creativity by providing a clear direction and reducing the paralysis of choice.

Ensuring the Evolution of Defaults Moreover, introducing templates and defaults is only the initial step in leveraging their potential. The more challenging aspect lies in their adoption, iteration, and ensuring feedback loops are in place to constantly update and maintain their relevance. This aligns with the insights from Scaling People, where the author emphasizes the importance of a robust system. Without these continuous updates and feedback, the templates risk becoming obsolete and ineffective, a part of organizational debt.

Conclusion: Beyond Creation of Defaults In conclusion, well-designed default processes and templates can act as powerful tools for unlocking organizational performance and creativity when correctly implemented. However, for these defaults to remain effective, they require regular review, iteration, and maintenance, informed by feedback from team members. This iterative approach ensures that these defaults stay relevant and productive, continuously supporting the organization's growth and development. Therefore, the challenge lies not only in creating effective defaults but also in ensuring their continuous evolution and adoption within the organization.

For this week, I set out to understand different decision-making frameworks and condense the ideas into a blogpost. My goal was to gain clarity on the topic for myself and share insights that could be useful in future discussions.

To make the research process palatable, I used the Snipd app on iOS to collect my notes. I'm not sure I would have been able to complete the task without that app given that I was now able to edit the notes and transcripts, not write all the notes from hearing. Though I have to admit, going through the transcripts and summaries remained a chore. But now that it's almost Friday evening, it’s time to write as much as I learned into a blogpost.

In the sections below, I'll summarize the main concepts from the podcasts. The ideas are from Daniel Ek, Lila Snyder, Brian Chesky, Ravi Gupta, Tobi Lütke, Aaron Dignan, and Paul Magnone. See podcast links at the bottom of the post. I've also taken a moment to think about how these principles relate to the banking industry in the Baltic states, where we operate on a daily basis. So, let's dive in and explore how these decision-making frameworks can be applied in our industry.

Daniel Ek, CEO of Spotify

Daniel Ek presents a decision-making framework encompassing three major principles.

• Firstly, the distinction between one-way door and two-way door decisions allows to differentiate between irreversible choices and those that can be easily reversed, enabling to for example adapt to market changes efficiently.

• Secondly, decreasing the number of variables simplifies complex problems, enabling us to focus on critical factors based on our strategy.

• Lastly, the inversion principle encourages considering what could go wrong rather than solely focusing on positive outcomes.

In general, Ek highlights the significance of lifelong learning and the acquisition of decision-making frameworks from diverse disciplines.

As a bank, this framework can guide us in making informed decisions regarding our services, products, and infrastructure. By carefully assessing the reversibility of the choices, simplifying complex problems, and setting priorities based on our strategy, we can enhance the operations and fulfill the customer promise of making the financial life easier.

Brian Chesky, CEO of Airbnb

Brian Chesky's decision-making framework centres on:

• principled decision-making

• first-principles thinking

• balancing qualitative and quantitative information

He prioritizes the user experience and authenticity, taking informed risks, and emphasizing clear communication. Chesky's approach highlights the significance of empathy and a deep understanding of the situation at hand. We could adopt this approach by ensuring the vision and customer promise are reflected in daily decisions as well as reflecting on how the decisions align with our core values. By combining qualitative insights from customer feedback and market research with quantitative data, we are able to make the well-informed decisions that enhance our customer offering and NPS.

Embracing first-principles thinking allows us to break down complex problems into fundamental elements, enabling us to think through what is truly needed and effective and how we use the governance and regulatory setup to our advantage. Clear communication of decisions will help us build trust and transparency with customers, promoting long-term relationships.

Lila Snyder, CEO of Bose

Lila Snyder' decision-making framework emphasizes the importance of three angles:

• having the right people in the room,

• encouraging informed debate, and

• maintaining purposeful speed.

By gathering diverse perspectives and fostering an environment of open dialogue, we can ensure that we have considered all the angles before making important decisions. Additionally, striking a balance between thorough discussions and timely actions allows us to navigate the fast-paced environment effectively. Through the framework described, we can ensure we a diverse range of voices from the entire matrix organization contributing to decision-making processes. By fostering a culture of informed debate and valuing different perspectives, we can make well-rounded decisions that cater to the needs of our customers while generating long term profitability.

Ravi Gupta, partner at Sequoia Capital

Ravi Gupta highlights common traits he has seen among great decision-makers, including:

• using writing as a tool to clarify ones thinking and expose it to feedback

• selectively seeking advice

• managing decision fatigue

• being comfortable with uncertainty, and

• asking insightful questions to explore all possibilities

For us, writing can be a valuable tool to assess the strengths and weaknesses of the hypotheses we have for discussion and further decision-making processes, ensuring thoroughness and clarity. Managing decision fatigue and being comfortable with uncertainty are crucial in our complex dynamic landscape, where quick yet informed decisions are necessary. Finally, asking insightful questions will allow us to explore the diverse views and make well-rounded decisions.

Tobi Lütke, CEO of Shopify

Tobi Lütke emphasizes:

• the role of UIX and innovation

• focusing on the most important (the most important thing is to focus on the most important thing)

• the power of subtraction

• risk-taking and uniqueness

• innovation through continuous adaptation

• the art of making decisions based on understanding all variables, and

• the role of trust in decision-making and team dynamics

For us a bank, incorporating user experience design (UIX) principles can enhance digital banking platforms and provide seamless customer experiences. Focusing on core competencies, setting strategic metrics, and making well-calculated subtractions can help us streamline operations and allocate resources effectively despite the ever-growing complexity. Encouraging conscious risk-taking and embracing uniqueness allows us to differentiate ourselves and introduce the relevant new banking offering.

By integrating these principles, we can foster innovation, streamline operations, and build a strong foundation for customer-centric banking services.

Aaron Dignan, Author of Brave New Work

Aaron Dignan's insights, based on the episode I listened, encompass:

• challenges of long-term thinking when focus is on short-term goals

• how big companies ultimately comprise of groups of 150 people units

• burstiness and active participation in team conversations

• the evolution of organizations moving from chaos to bureaucracy and finding a balance

• dynamic steering through feedback loops

• standards vs defaults and how to use defaults as a foundation to build efficiently on, and

• consent vs consensus based decision making

• avoiding using tools made for complicated environment in complex environments

Understanding the challenges of long-term vs short-term thinking will help us prioritize for example sustainable growth strategies, focusing on customer needs and market trends rather than short-term gains. Recognizing the nature of the organization as composed of smaller units can guide the understanding of centralized vs decentralized structure, promoting agility and responsiveness to customer needs. Embracing burstiness in team conversations encourages active participation and idea sharing, fostering innovation and problem-solving within the banking workforce.

Paul Magnone

Paul Magnone introduced quantitative intuition as a framework for making informed decisions with incomplete information. The concept of quantitative intuition emphasizes precision questioning, contextual analysis, and synthesis to make decisions with incomplete information. Precision questioning is discussed as a technique for well-defined decisions, highlighting the iWIC (I wish I knew) framework and the need to spend sufficient time on granular questioning. The challenges of balancing time, risk, and trust in decision-making are addressed, emphasizing the significance of insightful questions and the avoidance of excessive reliance on data or gut instincts. Lastly, the importance of trusting intuition and actively seeking additional information is highlighted, reminding decision-makers to avoid the traps of blind trust or perfectionism.

Conclusion

In synthesizing all these inputs, I gained a better overview of decision-making frameworks from diverse backgrounds. The five bullets I will try to focus on include:

• distinction between one-way door and two-way door decisions

• dynamic steering through feedback loops

• standards vs defaults and how to use defaults as a foundation to build efficiently on

• how big companies ultimately comprise of groups of 150 people units

• the power of subtraction

While the methods of the seven thought leaders differ, a common theme is evident: the emphasis on careful thought, consideration of multiple perspectives, and finding the right balance. This balance pertains to both data and intuition, speed and deliberation, risk and safety. We also see a shared understanding of the necessity to continuously adapt to new information and evolve our decision-making processes accordingly.

Applying these principles to our circumstances provides potential for optimization and innovation. By integrating these ideas, we can enhance our services, respond more effectively to market changes, and better fulfill our customer promise. At times, decision-making can seem like something to get over with as fast as possible, but we should turn decision-making into a strategic asset through deliberate actions. Ultimately, the key takeaway is this: In the journey to make the best possible decisions, we must remain open, adaptive, and always ready to learn.

Podcast links

Daniel Ek - Enabling Creators Everywhere - [Invest Like the Best, EP. 242]

How Bose compete with AirPods — and why it’s in more cars than ever, with CEO Lila Snyder

I can't make products just for 41 year old tech founders," Airbnb CEO Brian Chesky on taking it back to the basics

#164 Ravi Gupta: The Realities of Success

#152 Tobi Lütke: Calm Progress

#158 Aaron Dignan: Change The Way You Work

809: How to Make Wise Decisions using Quantitative Intuition with Paul Magnone

The "strong opinions, loosely held" principle is a crucial behavioral skill that I have recognized as essential for finance analysts. Due to the varying interpretations of this idea, I wanted to write about this to clarify (also for myself) the value I see in it and how to apply it without appearing overbearing or obnoxious. Below, I will write a bit on the concept of strong opinions, loosely held, and discuss its benefits while emphasizing a mindful and considerate approach to its execution.

This mindset promotes passionate advocacy for one's ideas while remaining open to change when presented with new information. It highlights the significance of critical thinking, adaptability, and emotional intelligence. Often attributed to Paul Saffo, this concept resonated with me after hearing Marc Andreesen mentioning it in a podcast. The idea is also echoed in Richard Feynman's quote, "We are trying to prove ourselves wrong as quickly as possible because only in that way can we find progress!"

Aaron Dignan, author of "Brave New Work," a book I recently read and would recommend, emphasizes the importance of feedback in driving innovation and progress, stating that "feedback is the lifeblood of everything" (Dignan, 2019). Without stating your opinions, you can't get feedback on them and learn. By integrating design thinking and systems thinking, Dignan suggests that constantly testing ideas and being receptive to feedback are vital for success in our rapidly evolving world.

When advocating for strong opinions, it is crucial to be kind and considerate of others' feelings. Amazon founder Jeff Bezos learned this lesson from his grandfather, who told him, "It's harder to be kind than clever" (Stone, 2013). This anecdote underscores the importance of not only speaking the truth but also conveying it with compassion. Being right is insufficient; we must also be kind.

John Cleese, the renowned British comedian, contributes to the strong opinions, loosely held conversation in his book "Creativity." Cleese posits that most people desire to be right, while the very best people seek to know if they are right. This mindset aligns with strong opinions, loosely held, emphasizing the importance of challenging one's beliefs and remaining open to new perspectives.

A powerful maxim encapsulating this concept is: "Say what is true, useful, at the right time, appropriate, and kind." This statement, attributed to the Buddha (Kalama Sutta, Anguttara Nikaya), serves as a reminder that effectively communicating strong opinions requires balancing honesty, utility, timing, appropriateness, and kindness.

There are three main challenges to consider when applying this concept:

1. Overcoming confirmation bias, which can hinder our ability to genuinely change our minds when faced with new evidence.

2. Addressing the discomfort people may experience when contradicting others, particularly in professional or social situations, which can suppress dissenting views.

3. Avoiding the expression of strong opinions too forcefully or loudly, as it can unintentionally stifle conversation and discourage open dialogue.

In conclusion, the concept of strong opinions, loosely held, advocates for passionate idea-sharing, open-mindedness, and empathetic communication. By maintaining a mindful approach to team and meeting dynamics, we can both "hold strong opinions loosely" and foster a culture of innovation, collaboration, and personal growth.

Resources

• Dignan, A. (2019). Brave New Work: Are You Ready to Reinvent Your Organization?

• Stone, B. (2013). The Everything Store: Jeff Bezos and the Age of Amazon.

• Cleese, J. (2020). Creativity: A Short and Cheerful Guide.

• Saffo, P. (2008). Strong Opinions Weakly Held

• The Tim Ferriss Show Transcripts: Marc Andreessen (#163)

• Richard Feynman Quotes

• Kalama Sutta: To the Kalamas (Anguttara Nikaya 3.65)

• Feld, B. (2019). Bad Entrepreneurial Cliches: Strong Opinions Loosely Held

• Ranadive, A. (2017). Strong Opinions, Weakly Held — a framework for thinking

• Natkin, M. (2019). Strong Opinions Loosely Held Might be the Worst Idea in Tech

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Introduction

As we’re in the midst of the planning cycle and by this, the question of what constitutes a strategy and its connection to activity planning has resurfaced in my mind. Several perspectives have struck a chord with me, particularly the factors that define a good strategy and how the bank’s business model might need to adapt in order to stay relevant amidst the ever-changing landscape.

With this blogpost, I aim to consolidate my thoughts on this subject, not merely to continue reflecting, but to organize these ideas in a coherent and structured manner.

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What is Strategy?

According to Wikipedia, strategy is a general plan to achieve one or more long-term or overall goals under conditions of uncertainty. So, there is the general plan. And it's devised to achieve long-term goals, ok so far.

According to Richard Rumelt in Good Strategy Bad Strategy, a good strategy consists of three key elements (the kernel):

1. Diagnosis

2. Guiding policy

3. Coherent action

Building the strategy begins with a clear understanding of the challenges your organization faces, followed by a general approach to addressing these challenges, and finally, a set of well-coordinated actions designed to implement the guiding policy.

Rumelt emphasizes that a good strategy is not merely a collection of goals or aspirations; instead, it is a cohesive and actionable plan that addresses specific challenges and focuses on achieving tangible results. In contrast, bad strategy is characterized by vague objectives, lack of focus, and a failure to confront the critical issues and challenges that the organization or individual faces.

On a more classical note, Michael E. Porter defines strategy as the set of actions and choices that an organization makes to create a unique and sustainable competitive advantage. Porter emphasizes the importance of making deliberate choices to position your retail bank favorably within the competitive landscape, focusing on either cost leadership, differentiation, or targeting a specific market segment.

Exploring some further remarks on three more authors whose books I’ve read in the last year:

1. A successful strategy must also account for the disruptive innovations that can reshape industries, as emphasized by Christensen in Innovator’s Dilemma.

2. Building a learning organization that continuously adapts to the changing environment, as advocated by Senge in The Fifth Discipline, is equally important.

3. Finally, we must be prepared to reinvent their business models to stay competitive and capitalize on new opportunities, as suggested by Johnson in Reinventing Business Models.

Keeping a Bank’s Strategy Up to Date and Relevant

As the operating landscape continues to evolve, we are witnessing material changes from a rate environment perspective and in terms of emerging market trends and technologies. Navigating these changes requires a proactive approach to strategy formulation and adaptation. Below are some key insights that have resonated with me from the materials I've gone through recently, which could help keep a bank's strategy and its execution up to date and relevant

1. Embrace disruptive innovation: Christensen's work in "The Innovator's Dilemma" highlights the importance of recognizing and embracing disruptive innovations that can transform industries and create new market opportunities. According to this, one must be willing to invest in and adopt emerging technologies and business models that challenge the status quo, even if it means disrupting their existing operations.

2. Foster a culture of continuous learning: Peter Senge, author of "The Fifth Discipline," emphasizes the importance of building a learning organization that can adapt and thrive in a complex and dynamic environment. To support this, one should encourage employees to stay informed about industry trends, emerging technologies, and changing customer preferences, and promote a culture of continuous learning, experimentation, and improvement.

3. Regularly review and reassess your strategy: As suggested by Rumelt in "Good Strategy Bad Strategy," periodic reviews of the bank's strategy are critical to evaluate its effectiveness and alignment with current market conditions, customer needs, and organizational goals. One should be prepared and open to adjust the strategy as needed to address emerging challenges or opportunities.

4. Reinvent your business model: Mark W. Johnson, co-author of "Reinventing Your Business Model," argues that organizations must periodically reevaluate and reinvent their business models to stay competitive and capitalize on new opportunities. How does one assess the viability of the current business model? Further concepts on this include exploring innovative approaches to delivering value to customers, such as leveraging digital channels, partnering with fintech firms, or targeting underserved market segments. A bit broad, but has interesting kernels.

5. Balance exploitation and exploration: Drawing from Rumelt's insights on coherent actions, one should strike the right balance between exploiting their existing capabilities and resources and exploring new opportunities and innovations. This involves allocating resources and attention between optimizing current operations and investing in initiatives that drive future growth and competitiveness.

Conclusion

In conclusion, a winning strategy is vital for us to navigate the challenges and opportunities presented by today's dynamic and competitive financial environment. While focusing on the core customer promise, one needs to keep evolving the strategy through fostering a culture of continuous learning, balancing exploitation and exploration, and yes, even periodically reinventing the business model.

With customers increasingly demanding the same seamless experiences they enjoy in other aspects of their lives, it's essential for us to treat innovation not as an option, but as a necessity. Even the simple-looking startups may seem unthreatening at first glance, but they have the potential to eat into the core business of a bank.

Resources

Some books, articles I've read on the subject in the last 1-2 years and used for the current blog post:

• Good Strategy Bad Strategy: The Difference and Why It Matters. Richard Rumelt

• The Innovator's Dilemma. Clayton M Christensen

• The Fifth Discipline: The Art & Practice of The Learning Organization. Peter Senge

• Reinvent Your Business Model: How to Seize the White Space for Transformative Growth. Mark W Johnson

• What is Strategy? Michael E. Porter

• What the Heck Is Strategy? Jevgeni Kabanov