Eighty percent of economic profit created by companies globally comes from 20% of the companies. Yes, the Pareto principle applies here too! What’s the secret sauce for becoming one of the 20%? The bad news? There is indeed a sauce and a recipe for how to make it. The good news? The recipe is not a secret anymore!
As we’ve been uncovering over the past months, supported by the book Strategy Beyond the Hockey Stick, there are only a limited number of factors that with a high degree of certainty can make your strategy a success and boost you into the top 20% of value-creating companies. The caveat is that the conversation in the strategy room is broken. It needs to be fixed and maybe even transformed. Who can do that? I believe it’s up to FP&A, because when I look at the recommendations made to transform the strategy process, FP&A plays a role in all of them.
How can FP&A get this done?
To start with, don’t wait for the CFO or CEO to come and ask. FP&A must take this role and proactively change the strategy conversation. I’ve laid out eight specific changes for FP&A to make to address the book’s recommendations to fix the strategy process. Here’s a summary of the changes:
1. The planning process must change from a static once a year budget view into a dynamic process that looks back and forward in time to identify where the company is on the hockey stick curve
2. Start discussing real alternatives to what the company is already doing, because if your strategy only consists of one way forward, you’re not making real choices, and what you have is not a real strategy
3. Pick the initiatives in your strategy that you know will do well, and more importantly, deselect those that won’t. If you don’t deselect, you won’t have enough resources to fund your winners well enough for them to succeed
4. Stop thinking incrementally and start thinking in big moves. If all you do is move 3-5% every year, at best you’re only staying on par with the competition. Don’t forget that while you’re moving, so are your competitors, and none of you will create any significant value
5. Start freeing up resources to invest in your strategic initiatives on an ongoing basis. You should aim for always having 20% of your resources as liquid resources that can be channeled to the most strategically impactful initiatives
6. Stop sandbagging and hiding reserves up your sleeves. If you don’t know the true performance of the company, how can you make the right decisions?
7. Stop being too fixated on your performance as expressed by the numbers, but rather look at things more holistically. Ask yourself who’s delivered the best performance amid the given external and market conditions and relative toward your competitors—not compared to a fixed budget
8. I’m sure you have a great strategic plan that’s going to catapult you into the 20% of value-creating companies in five years. However, don’t forget about the first step! What are the first few things that must get done? What early wins are you aiming for? Are you ready to stomach that it might get worse before it gets better? After all, that’s what hockey sticks show, isn’t it?
FP&A plays a role in making all of these things happen. It won’t be easy. No one will ask you to do it. You’ll likely face resistance. However, do this well and your company will thrive. That surely won’t go unnoticed!
What’s your first step?
Enough talking and planning. It’s time for action! Here are some first steps you can take to get started on transforming strategy.
- Look at your performance for the last three years and project it for the next three. It will tell you where you are on the hockey stick
- Revisit the latest strategy of the company and see if any real alternatives were discussed. If not, raise this point and suggest alternatives
- Revisit your latest resource allocation process and see how resources were allocated. Were they spread evenly across departments and initiatives like peanut butter or reallocated to initiatives with high ROI?
- Do a competitor check. Are you moving ahead of them or staying on par?
- Look at how resources are currently spent and create a 20% list of how you would free up resources to invest in making your strategy a success
- Go back through the latest quarterly accounts and see how many times questionable provisions were either made or released
- Start creating a context around performance and stop looking only at variance to budget
These are all steps you can do within the next 100 days to get you started on your journey. Which steps will you take?