2023 will be the year of agility
During the height of the pandemic, there was much talk of a new normal and the significant and rapid change in how we worked and lived. For many finance teams, this meant adopting new technology to enable home-based working, agile planning in response to lockdowns or stay-at-home orders and an increasing number of requests for reforecasts and updated scenario models. Although we are over the worst of the pandemic, there are other external factors that will continue to impact businesses over the next year and beyond - the Ukraine war and its impact on energy and grain prices, economic downturn with economies falling into recession and the effect this has on consumer and investor/market confidence.
The new normal is instability, with teams who may have moved to shorter planning cycles in 2020, continuing to plan responsively, due to macroeconomic conditions i.e. inflation, energy price increases etc. FP&A teams will have to be agile, helping the organisations understand what impact fluctuating currencies, inflation and more will have on their sales, headcount, and profitability.
Abhishek Singh, Customer Director US
Extended Planning/xP&A will come to the fore
xP&A isn't a new concept but with organisations facing increasing challenges, we expect more teams i.e. marketing, sales, HR and operations, to be tasked with analysing data inputs from across the business and work collaboratively to help the business make broader but better aligned strategic decisions.
With the recession in the UK being talked about as potentially the longest recession in a century, companies may want to better understand the performance of their marketing spending to ensure that it’s optimized and that any investment is focused on the areas that will drive the biggest return. This is just one example of where FP&A/xP&A can add value. The additional complexity and demand of extended planning and analytics on FP&A teams will lead to teams reviewing their technology in order to find the most effective solution to help deliver on business needs.
Cat Powell, Managing Consultant
Staff retention will be key to success
As the demand for experienced FP&A talent grows, businesses will find it challenging to retain their team members. The growing need for agility will also add additional pressure and workload to these teams. Finance leaders will need to consider how they manage their teams effectively, and ensure they have the right skills and technology to support them making it easier for the work to be delivered well. Traditionally leaders have had the luxury of larger teams so at times haven't focused on process efficiency or how technology could free up time for higher value work - providing detailed analysis and insights, but with many companies wanting to manage their costs, this may change.
Technology like dedicated FP&A solutions will reduce the amount of time taken to build reports, plans and scenario models and reduce errors so that teams can focus on being responsive to the business’s changing needs and provide real insights to support strategic decision-making.
Simon Carey, Managing Consultant
Companies will need to consider how they thrive not just survive
With the recession in the UK projected to last for two years with a trajectory back to growth likely to be even longer, companies will need to look further than building and maintaining resilience if they want to survive and even thrive post-recession. Traditionally companies have made cuts to weather economic storms, reducing the headcount of back-office teams, cutting investment in go-to-market activities – sales and marketing, and R&D. Although this has created stability in the short team, studies conducted over a number of recessions show that companies that continue to invest in R&D will grow (Forbes) whereas those who divest, falter or stagnate.
Investing in scalable technology and finance process innovation will ensure that the finance function will operate as efficiently as possible, in the short term and provide the platform for long term growth. The right technologies will also allow businesses to be able to rapidly adapt to a changing socioeconomic environment, whereas taking a short-term view of reducing/redistributing cost may remediate the immediate profitability challenges but will lead to medium- and long-term loss of competitive advantage in already difficult operating conditions – at a time when they need that competitive advantage the most!
Luke de Klerk, Principal Consultant
Optimizing for success
One of the ways we all manage our money when things are a bit tight, or we are being more careful about our spending is to look for opportunities to optimize our current expenditure. A famous British saying is ‘to make do and mend’ and in the forthcoming year, we expect to see companies do this, looking for opportunities to drive more value and optimize spending.
FP&A teams can play a pivotal role here in providing insights and identifying potential opportunities. Real estate improvement is one area where there could be opportunities to optimize, areas to consider include:
- Can we change our office lease terms to reduce cost, or do we sell off real estate that is currently unused?
- Does it make sense to have a stand-alone store in certain markets/locations and should we look to exit, or are there shared retail space opportunities i.e. department stores or do we look to a hybrid options such as click and collect hubs which reduce both real estate and employee overheads.
However conscious efforts to control cost can only take a business so far; those businesses looking to strengthen their operating effectiveness also need to look at improving execution. Translating strategy effectively into revenue (with the appropriate profitability) has always been a challenge for businesses which aren’t able to fluidly connect the “plan” to operational activities. Within any given business, there are always processes within the delivery of services, or products to customers which seem opaque in nature, with little understanding of why it takes X amount of time to complete the order to cash process, delivering to a customer (physically or otherwise) and receiving payment for it. Often this is due to the fact that strategy decisions are supported by point-in-time analysis of historical data and a projection/forecast of likely future performance.
Forward-thinking businesses will take this strategic analysis and build it into their operational reporting, allowing them to track the business’s effectiveness in executing these decisions. Many businesses however can’t do this due to the constraints of the technology systems, as strategy and core finance systems are often woefully misaligned. At a time of budget constraints, avoiding short terminus thinking by choosing not to remove this barrier to improved execution will mark out those businesses who want to improve their core abilities to perform versus those who will simply manage costs (avoiding the real challenge of improving actual performance).
Richard Freeman, Customer Director UK
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