AFP® GUIDE to FP&A Organizational Structure: Trends and Best Practices FP&A Guide Series

AFP® GUIDE TO FP&A Organizational Structure: Trends and Best Practices FP&A Guide Series

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Contents

Executive Summary 1 Finding the Right Model 2 Sidebar: FP&A Challenges Today 2 Sidebar: Asking the Right Questions 3 Case Studies 4 Centralization Case Study: Jack in the Box 4 Centralization Case Study: Retailer 4 Centralization Case Study: Masonite International Corporation 5 Hybrid Case Study: Volcano Corporation 7 Hybrid Case Study: Emeritus Senior Living 8 Hybrid Case Study: Consumer Products Company 8 Hybrid Case Study: Intel Corporation 10 The Emerging FP&A Organizational Structure 11 SSC Case Study: Littlefuse 12 Best Practices 13 Conclusion 14 Dear Financial Professionals,

Companies face unprecedented levels of risk and need quick access to unbiased analysis and decision support to navigate effectively. Unfortunately, the FP&A teams chartered to provide that analysis and support are often slow to react due to outdated processes and organizational structures. In response, many CFOs have begun to reconsider how best to structure their FP&A organizations.

With this in mind, we are pleased to partner with the Association for Financial Professionals (AFP) to produce this guide to FP&A organizational structures.

This guide explores three common FP&A organizational structure approaches, the pros and cons of each, and a list of organizational best practices for maximizing efficiency and decision support capabilities.

Key best practices for creating or rethinking your FP&A organizational structure:

• Streamline processes between FP&A, treasury, risk, and accounting teams. Build greater collaboration among teams, and tie groups together to increase efficiency.

• Determine what type of FP&A organization fits your operational complexity, growth trajectory, and market characteristics. Decide which model (i.e., centralized, decentralized, hybrid) would be most successful based on these factors.

• Empower teams with the right technology to enable a collaboration between corporate and business unit teams. The best FP&A teams have not only an effective organizational structure, but the right people and technology that lead to efficient processes and an effective support model.

This guide will help companies make informed decisions about the best way to structure their FP&A organizations and make the best use of technologies that empower their FP&A teams.

We hope you find it useful when the time comes to create or modify your FP&A structure.

Joseph Howell Managing Director, Workiva AFP GUIDE: FP&A Organizational Structure: Trends and Best Practices

Executive Summary Growing volatility in the business environment, cost centralized function at headquarters, a decentralized pressures, and a new focus on enterprise performance function with FP&A professionals distributed through- has sparked a renewed interest in FP&A organizational out the company, or most commonly both. structure. Companies are starting to realize the valuable There are cons to each approach. Centralized functions role of FP&A in managerial decision-making. “This is may not be as close to operations, struggling more to a pretty hot topic,” said Sholape Kolawole, principal at collect information and deliver decision-making support The Hackett Group. and analytics. Meanwhile the decentralized model often How the FP&A function is organized has a lot to do hampers a holistic view of the company—and the critical with a company’s growth curve, and its industry and role FP&A plays as an independent advisor—because alle- corporate structure. Fast growing companies often need giance to business unit leaders creates conflicted priorities. to have more staff in the field than mature, slower grow- A hybrid model may be more costly due to a larger ing enterprises. Companies with few business lines and a number of full-time equivalents (FTEs). Although simple organizational structure can be more centralized. companies are increasingly trying to streamline the Finally, large complex organizations may need both a infrastructure through the use of shared services centers corporate function and embedded staff. (SSCs) or centers of excellence (COEs), which are some- The ultimate goal of any organizational structure is to times located offshore. support an effective and efficient delivery of services to inter- This guide explores the various approaches to an nal and external customers. That’s true for FP&A as well. FP&A organizational structure. With comments from In order for FP&A to deliver the added-value it can experts and multiple case studies, it provides an overview provide to senior management and operations, it needs of different companies’ approaches and emerging trends, to have the right people in the right place. It needs to be delves into the pros and cons of each approach, and of- positioned to communicate up to senior management, fers a list of best practices. After reading this guide, you’ll delivering analysis and telling “stories” to drive enterprise have a better understanding of how to create an FP&A performance; it also needs to be able to communicate organizational structure that maximizes efficiency and downward and across functions, to support the opera- delivers analysis and decision-making support to better tions. Depending on the company, that may mean a aid your organization and its leadership.

Finding the Right Model In order to keep up with a rapidly changing business environment, more and more companies are revisiting their financial FP&A Challenges Today operating model in an effort to ‘up’ their analytics game. According to Datta, CFOs are “Aggressive competition, intrusive regulations, capital facing unprecedented levels of markets volatility and business complexity—these forces risk in their business environ- can conspire to overwhelm any organization,” said ment—leading many to rethink Vic Datta, managing director with the Office of the CFO their finance organization in Solutions, FTI Consulting. (For a checklist of pressure general, and FP&A specifically. points see the sidebar.) • Globalization has put a strain In order to differentiate themselves from competitors, on finance organizations’ companies need to be able to respond quickly and effectively ability to provide effective to external forces, as well as business and market opportunities. and timely information As a result, CFOs, and by extension their FP&A teams, “must and analysis. be focused on providing near real-time business insights to key decision makers so they can make smart and timely decisions as • Global businesses often have internal and external challenges unfold.” [Datta, “Rethinking disparate processes, business the FP&A Operating Model,” Nov. 2012]. cultures and systems. Datta further states that a critical part of the finance orga- • Finance is increasingly tasked nization transformation is creating an efficient and effective with providing input into the FP&A operating model. This requires a company to bal- organizational strategy, while ance global, regional and local business analysis needs while still maintaining excellent capturing some economies of scale through SSCs or COEs. operational insights.

• Data may be plentiful, but Companies need to anchor their finance organizational it often takes too long to structure to the demands of their own growth trajectory, “translate” into useful markets and industries. information. Unlike most of the other functions in the CFO organization, FP&A’s role has broad variability across the company, • There’s a lack of common according to Jim Robertson, director of FP&A at Emeritus. global standards, processes While the role of FP&A and its organizational structure can and data definitions. vary by industry and company maturity, it should fit with • The wealth of information the way leaders make decisions. “The key is for the function is slowing down the ability to provide the services to match the particular organization’s to produce timely analysis. needs,” Robertson said. According to Datta, analysts Emerging vs. Mature Markets spend two out of every three To select the right structure, companies need to take into hours just chasing data. account whether they are in mature, slow growth markets, fast • The budgeting and forecasting growing geographies or market segments, according to Scott processes remain inefficient Brennan, managing director, Finance & Enterprise Performance and unproductive at many Strategy Group at Accenture. Each presents a different chal- organizations. lenge. “Low market maturity often requires a more distributed finance organization,” he said. According to Jason Logman, principal at the Hackett

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Group, when market maturity is high, companies can be centralized and do a lot more out of corporate. “Those companies have a centralized and larger FP&A group that Asking the Right Questions drives standardization in the organization,” he said. A cen- The key organizational questions tralized approach allows companies to become more com- CFOs and FP&A professionals fortable that they’re reporting based on the same standards should ask include: and workflow design. “It drives consistency,” he said. 1. Should FP&A be performed in-country? Fast Growing vs. Established Companies The operating model for FP&A often also depends on 2. Should it be centralized or the company’s growth trajectory. Fast-growing companies moved to the business units? tend to operate on a portfolio approach that is more like 3. Should the more transactional a holding company with various independent businesses, aspects of FP&A be moved according to Datta. “In these cases, FP&A at the corpo- into a COE? rate level provides general guidance on resourcing, capital spend, interest rate direction, as well as sometimes cash 4. What skill set is required at forecasting capabilities,” he said. each level? The bulk of FP&A activities often take place at the 5. What are the more effective business unit or operational level, and the general manag- reporting lines for FP&A staff, ers of each business typically have a strong performance both centralized and management orientation. “They tend to have their own embedded? analysts, or embedded FP&A professionals from the corporate office, utilizing the function more as a connection 6. What common processes to the operations,” said Datta. “These resources typically and technologies could make understand the rhythm of the business line they serve and the operating model more provide necessary support to budgeting and forecasting.” effective and efficient? Some holding company structures, “are literally just rolling the numbers up; there’s no one to talk to,” said Brian Kalish, director, finance at AFP. In contrast, companies in mature markets or mature industries can handle more FP&A activities at headquarters. “The centralized model certainly creates greater efficiency. It also aligns the function around a common goal as they typically report to the CFO. This drives standardization and adherence to the vision,” Brennan said. Plus, a group at corporate can develop a greater sense of community while developing and leveraging high-level skills. “Centralization enables efficient business solutions,” said Brennan. It also makes it easier to develop talent, as processes and standards are the same across the organization. “The more standardized the metrics and processes, the easier it is to have people rotate into the business finance functions and learn the business as opposed to learning whole new ways of doing finance,” Brennan said. “As a result, the company can build better leaders.”

Centralized models provide several key benefits, among them businesses with any changes that need to be made,” reduced cost, better standardization and control, and a Bogue said. In addition, the corporate function handles source of high-level skills. all the ad hoc analytics, payroll analysis, and capital bud- “The general trend in the FP&A organizational struc- geting and store analysis. “We play a decision-support ture field is the opportunity to leverage a more central- role,” he said. ized structure to provide economies of scale and the right The benefit of having a centralized FP&A function is skill set,” said Logman. “The economies of scale are not that “everything is happening in one place,” said Bogue. just about doing things cheaper.” According to Logman, “The flip side is that that role is not happening at other while a centralized approach can provide greater efficien- places. As a result, we’re not as close to the business as I’d cy, it also allows companies to create the right skill set to like us to be.” support management and the business units. “FP&A is a talent-rich area; centralization allows companies to more Centralization Case Study: Retailer effectively build that talent,” he said. The FP&A function at this $2 billion retail company is also highly centralized. The director of FP&A heads a Centralization Case Study: group of 12 professionals organized into four teams of Jack in the Box three. Each team focuses on a different area within the Jack in the Box is a San Diego, Calif.-based, $1.5 billion company: 1) retail stores and real estate; 2) marketing food services company with mostly domestic opera- and digital retail; 3) supply chain, merchandizing and tions, and a total of 2,880 stores encompassing two private brands; and 4) back office functions like IT and brands: Jack in the Box and Qdoba. HR. This four-pronged approach allows the company to The company has a highly-centralized FP&A function better align its FP&A group with the business divisions. which reports to Sean Bogue, vice president and assistant “We handle performance management, i.e., under- treasurer, planning and analysis. Bogue oversees both standing where we are, why we are where we are and treasury and FP&A; the two are distinct. “In the areas where we’re going, along with key questions of resource that they do overlap, we have better connection points, allocation in the form of budgeting and long-term strate- e.g., financial statement forecasting in FP&A is better gic planning. We pull all that together for the organiza- tied to debt covenant forecasting in treasury,” he said. tion as a whole,” the FP&A director said. “We have six analysts who support the three areas of The head of each team reports directly into the director of the business: corporate, Jack in the Box and Qdoba,” FP&A, with a dotted line to division leaders. The interaction said Bogue. All of the high-level FP&A activities are between FP&A and the business is to some extent a factor of handled by this centralized team, with some analyt- the relationship with different leaders: some use FP&A bet- ics happening at the business unit level. “But these are ter than others. “Part of my job is to help people understand more business analysis rather than FP&A activities,” how we can provide value,” said the director. Bogue said. There’s also a sales and marketing analytics This has become critical since the CEO charted a new role. “They play some role in the forecasting and plan- course and culture for the company—one with a stronger ning process, but it’s not 100 percent of their job.” voice for the retail and digital stores versus what was previ- While the analysis and decision-making support is ously very merchandizing-focused. As the voice of the sales centralized, the bottoms up forecasting and budgeting channels grows, so does their organization need to partner processes are rather decentralized. “We work with 20-30 effectively with FP&A to deliver analysis and “numbers” areas that all submit budget and forecasting informa- to the C-suite. “There’s a heightened level of requests for tion,” Bogue said. financial information coming from the new CEO, which Corporate FP&A drives the timeline, and provides has made FP&A’s role more critical and made it easier for the template, the format and the context as well as all us to get a seat at the table and have the sort of influence the consolidation and analytics. “We get back to the that is beneficial to the organization as a whole,” he said.

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Historically, FP&A had been focused more within the Centralization Case Study: context of investment and cost management. “Market- Masonite International Corporation ing and merchandizing have been the primary drivers of Masonite International Corporation is a public, $1.7 planning revenue, while the retail and digital stores have billion global building products company with a supply been ‘recipients’ of that information,” according to the chain spread across 65 manufacturing facilities in 11 director of FP&A. Now, he said, “we’re stepping in to different countries. Masonite is one of only two play a more active role.” FP&A now meets with market- vertically integrated, residential molded-door manufac- ing and merchandizing and leaders from the sales chan- turers, and the only vertically integrated, commercial- nels after every month-end close to discuss and align on door manufacturer in North America. Headquartered an 18-month forecast. in Tampa, Fla., the company currently has 9,500 global As FP&A plays a more important role in creating employees, with approximately 150 FTEs at the the revenue forecast, the forecast itself is gaining in company’s global headquarters. importance. The company has been traditionally budget- Masonite’s corporate FP&A function is located in focused, with the forecasting mainly informing manage- Tampa, with three professionals carrying a formal ment as to how closely results match the budget. With FP&A title. “A senior financial analyst reports to the the new CEO at the realm, the company is putting more global FP&A manager, who in turn reports to the of its focus on the forecast instead. global FP&A director,” according to Doug Garis, This centralized approach means that some FP&A manager of global FP&A. activities happen outside of the FP&A function. “I feel While the FP&A function is centralized, the overall comfortable that there is not a need to control all financial finance organization is moderately decentralized and analytics throughout the organization,” said the direc- primarily operates within North American residential tor. For example, retail operations has a strong team that and commercial business channels. Most of the performs analytics and provides guidance in terms of cost finance staff outside of North America are spread structure and labor scheduling. “Rather than make it our throughout the countries and plant locations in which team, we leverage that team,” he said. “It’s very important Masonite operates. to understand what other teams are doing to help inform “We have successfully executed 12 strategic acquisi- our insight and analysis. We need to partner. We don’t tions over the past several years,” Garis said. “Through have to have a big thick line between what they do and the integration process, we have kept key financial what we do. For the most part we have full access.” leadership and talent in the field.” The benefit of this centralized approach is that FP&A Additionally, Masonite has several North American is able to look at the organization holistically. “All four FTEs that perform “FP&A-type” activity within the team leaders can sit in a room and look at the perfor- context of the traditional business unit finance model. mance of the $2 billion organization and have a cross-di- So while there are multiple FTEs across the organiza- visional view that’s very helpful, while preserving FP&A’s tion with exposure to FP&A, only the three FP&A ability to look into each division,” he said. In essence, it’s professionals “carry” the FP&A brand. the best of both worlds. Given the current makeup of Masonite’s finance FP&A has a line of sight into operations but does not organization, the FP&A team in Tampa focuses on be- have direct control over the people conducting some of ing an independent internal consultant to the business, the analysis. “If they reported to us directly they would “and an extension of the CFO,” Garis said. While some not be viewed as ‘their people,’” said the FP&A direc- finance staff may, from time to time, engage in FP&A tor—potentially making the information more transpar- responsibilities at the organizational level, Garis said ent but less detailed. “FP&A is all about relationships,” that the corporate team’s focus is to “develop deep cross- he said. “It’s good to have smart people, but if you can’t functional partnerships with operational leadership to build trust and respect you won’t be successful.” help execute against our current business strategies.”

FP&A also owns the annual planning and forecasting Neither model—centralized or distributed—is without its processes, providing key analysis for all forecasts and of- drawbacks, ultimately affecting the FP&A group’s ability to ten deeper analytics for the annual operating plan. “We deliver important services. perform three formal forecasts a year, a 3+9, 6+6 and “The one challenge [with centralization] is that the 9+3, and issue an annual operating plan that is presented ownership of decision-making doesn’t reside in the and approved by our board of directors,” he said. “This business,” said Brennan. “As a result, decisions are made is by far the most detailed and bottoms up view of our farther from the action, which means it’s harder to ser- business versus our three inter-year forecasts.” vice internal customers.” While larger cap organizations may partition FP&A The other drawback is its reduced flexibility in re- into various sub-functions such as budget, forecast, cost, sponse to business or market changes. “If the business is sales, capital planning and business development, “We trying to do things in a different way or grow a new mar- do it all,” Garis said. The company has recently invested ket, you want finance to be a little more flexible. That’s in centralized FP&A and is still building its presence at the benefit of a more distributed model: it increases its headquarters. “We’re trying to educate the organiza- accountability to the business unit. The business unit tion about the services FP&A provides and gain broad has greater autonomy and ownership of their financial support,” said Garis, who, along with his boss, has been decisions. That can make the process more flexible,” working to cultivate FP&A at Masonite since they joined Brennan said. the company roughly two years ago. At the same time, the distributed model challenges As the U.S. economy and residential housing market corporate standardization. “It takes much longer to roll return to historic output levels, Garis expects the func- out change if the organization is trying to transform, tion to continue to evolve. “As our company grows, the implement new reporting packages or create a new need for sharp, intellectual, FP&A-minded individu- return on investment playbook,” he said. als will be an imperative to execute against our goal to And, in a more distributed model, FP&A can lose capture the multi-year housing recovery on the horizon,” the sense of community. “Decentralization may lead to he said. duplication of skills,” added Brennan. Garis’ advice for building a strong core FP&A team is that the function first has to define its role within the These pros and cons are encouraging more organizations organization, and then “evangelize” that role company to pursue a mixed strategy that combines elements of wide. “We know what we do, and we know the value we both models. bring” he said. “And we’re broadcasting our vision to the According to Kalish, with the hybrid model some organization, which may not be as keenly aware of how activities occur at the holding company level. “Those fruitful a strong relationship with an FP&A business are the more strategic planning functions,” he said. In partner can be.” addition, many companies have FP&A staff or activi- At Masonite, the FP&A team has begun to notice the ties embedded in either regional centers or the business effects of their pull strategy. “If we can continue to push units. “Where companies are getting the highest return our leadership team to understand and familiarize with on investment is by having a centralized high-level func- what ‘good’ FP&A looks and feels like (and ask for it), tion, complemented with embedded activities,” he said. I expect our department’s size and scope of influence to The benefit of a hybrid structure is that there’s a per- substantiate the need to invest in more FP&A talent as ception of being a direct business partner. “Having more we grow,” said Garis. people in the field is also considered having FP&A closer By demonstrating and reinforcing the value-add FP&A to the business, with more direct exposure to plant, facil- provides, the team has effectively created a business de- ity and other business considerations,” said Logman. mand for its services. “We’re already close to the point of Another benefit of this approach is that it encour- turning down work due to bandwidth,” said Garis. ages FP&A professionals to learn about the business.

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After meeting with multiple FP&A professionals, Kalish Hybrid Case Study: found that those who are embedded in the business have Volcano Corporation learned more about the importance of FP&A. “This is Volcano Corporation (Volcano) designs, develops, manu- how FP&A can actually help the organization to make factures and commercializes a range of precision guided better decisions,” he said. therapy tools, including intravascular ultrasound (IVUS), The structure also permits very effective staff develop- and fractional flow reserve (FFR), products. The publicly- ment strategies, which include rotation to the field and traded, San Diego-based, $400-million company has over back to corporate. “You understand the work. You’re not 2,000 employees in the U.S., Europe and Japan, and is just doing it to generate a report to the CFO,” he said. currently expanding into other emerging markets. About The dual structure also helps FP&A achieve its half of its revenue comes from outside the U.S. value-added objectives, according to Larysa Melnychuk, Volcano’s FP&A function has a corporate finance director of the London FP&A Club. As the function team located at its San Diego headquarters. In addition, matures, the head office FP&A becomes a more strategic finance staff is embedded in each major geographic loca- and influential department. “They are more involved in tion. “At each location, there’s a group of accountants strategic planning and are one of the non-executive func- and one person who acts in an FP&A role,” said John tions that very often participates at the board meetings,” Blake, director of FP&A. “They don’t directly report to she said. me but rather to the local finance director, but effectively They report directly to the group CFO and have have a dotted line to me, with responsibility for deliver- reporting independence from local CFOs. “This is ing the work product such as budgets and forecasts.” necessary for objectivity of planning and forecasting pro- Those budgets and forecasts are submitted to corporate cess,” said Melnychuk. “Group FP&A is both a business FP&A, which then compiles and analyzes the information. partner to business units and a group business control- Currently, Blake has two senior finance analysts and one ler,” she said. senior revenue analyst reporting to him. What governs the organizational structure is the ability to minimize the use of Hybrid models can create an environment of dueling resources as this fast-growing company evolves. priorities between local business units and headquarters, The current organization also keeps the finance and ac- leading some companies to reconsider reporting lines. counting functions for manufacturing operations separate. According to Logman, the hybrid model tends to “We have a cost-of-sales team and a group plant controller challenge the standardization of the FP&A model, i.e., role that also reports to the CFO and handles all the cost ac- metrics and analysis. It can also create more tension counting,” he said. That team does not report into Blake. between the business units and corporate headquarters, To accommodate growth, finance was recently restruc- and mean more proliferation of activities and resources. tured, generally to split accounting and finance respon- “That means more work in a less controlled environ- sibilities. As a result, FP&A now reports directly to the ment,” Logman said. CFO, and the financial reporting responsibilities are now One way to handle this tension is by drawing clear re- housed in accounting and report directly to the controller. porting lines. “Overwhelmingly,” Kalish said, “the com- The reason management decided to make the split came panies I talk to believe that the embedded staff should as a result of the company’s rapid growth. Management report directly to the corporate FP&A function. If you decided to separate forward-looking and historical activi- don’t set up that reporting structure, you lose them [the ties due to their concurrent deadlines and work streams. embedded staff] to the business unit. That’s who they “As you move up the chain, FP&A becomes a value- identify with. If the general manager determines their add to the organization, partnering with business units compensation, it affects their motivation.” and creating a deeper understanding of business per-

www.AFPonline.org ©2014 Association for Financial Professionals, Inc. All Rights Reserved 7 AFP GUIDE: FP&A Organizational Structure: Trends and Best Practices formance,” said Blake. “That’s my vision for my FP&A group also prepares and updates a five-year forecast and group: The more we can be side-by-side with the busi- pulls together the monthly performance review presen- ness to help them analyze projects and look at how we tation. While the corporate accounting group prepares allocate and deploy our capital, the more value FP&A the financial management reporting, corporate FP&A can add,” he said. is responsible for preparing and distributing many of Blake’s advice to other companies: “FP&A needs to the company’s operating and sales metrics. Finally, this leverage its skills to add value to the business,” which should group provides analytical and transactional support to include the analysis of best return on investment and a deep centralized corporate teams, including sales and corpo- understanding of the business and external environment. In rate development. addition, the FP&A organizational structure should enable This dual structure has both advantages and disadvan- FP&A to quickly respond to ad hoc questions from manage- tages, according to Robertson. “It’s wonderful having ment about the company’s performance. “It’s best if you can such a great field FP&A team that is tightly interwoven get in front of that,” he said. with the operating groups and attuned to each group’s business needs and communication styles. Maintaining a Hybrid Case Study: strong corporate team collocated with corporate leader- Emeritus Senior Living ship provides a similar alignment and facilitates deep Emeritus Senior Living is the largest assisted living relationships with executives and serves as their analytical company in the U.S., with approximately $2 billion arm. It’s helpful to have one centralized group respon- in revenue and 30,000 employees. The company is sible for distributing many of the key metrics throughout organized generally into geographic operating units the company,” Robertson said. “The corporate FP&A supported by corporate functional groups. The FP&A group plays a strong data governance role in defining team is organized into two complementary groups, field what the metrics are and how they are reported, both and corporate, with each reporting to the senior vice internally and externally.” president of FP&A and investor relations. One disadvantage is that a more decentralized field FP&A team can reduce visibility into business opera- Field FP&A Team tions at the corporate level. To counter that, field and The field FP&A team is headed by a director with corporate FP&A have built strong relationships with direct reports, each of whom partners with an operating each other and with the business. Having both perspec- group. Field FP&A is responsible for developing the an- tives on one team serves to provide a deeper under- nual plan at an operations level, monthly forecasting for standing of the business than either group possesses on the remainder of the fiscal year, and reviewing financial its own. The corporate team also serves as a resource performance. It’s also heavily involved with the divisional for field FP&A when particularly thorny analytical or operations in order to understand the key drivers of the reporting needs arise. business, where the business is headed, and the financial impact of changes to the key drivers. Field FP&A is ma- Hybrid Case Study: jority collocated with the operations leadership, with the Consumer Products Company one exception of the individual who supports the COO. At this privately-held, $700-million consumer products Revenue management is also managed in this group. company, FP&A is organized on a hybrid basis. There’s a centralized corporate FP&A group, according to the Corporate FP&A Team former director of corporate FP&A, “but we also have a The corporate FP&A team is headed by a director sort of extended arm of FP&A that reaches out into each and is responsible for the corporate annual plan that individual region and business unit.” consolidates operations and the G&A functions. In At the corporate level, the FP&A team consists of addition to maintaining the consolidated forecast, this three members, in large part due to a recent cost-cutting

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reorganization. However, the overall headcount, includ- As a capstone exercise to financial process activities, cor- ing the staff that handles the distributed function within porate FP&A was responsible for all the necessary “visual operations, is about 12-15 FTEs. artistry” applied to various internal and external consum- Under the former director of corporate FP&A, the ers of summary financial information. “After aggregating team performed multiple roles. “We were an orches- all of the data and understanding the business issues in trator/facilitator of creating the total picture for the each of the individual pockets of the business, the corpo- organization. We understood, from a senior manage- rate group would formulate overall analytics and develop ment perspective, what the important deadlines were the all-important stories, primarily captured in the shape for corporate-driven, top-level events where financial of charts and graphs,” said the former director. information is going to be utilized: meetings with the Underlying all of the financial processes, corporate FP&A board, executive team, global leadership team, banks, was responsible for driving the FP&A system component etc.,” he said. (SAP Business Planning and Consolidation, or BPC for Key activities of corporate FP&A in preparing senior short). At a micro level, this included outlining and convey- management for these forums included defining and ing to end-users all specific technical parameters required for communicating throughout the organization the successfully entering financial data into the system. timeline, important milestones, technical and system On a macro level, corporate FP&A’s system oversight concerns for the strategic plan, the annual budget, and included duties around the security and integrity of data, quarterly forecasting processes. Within the implemen- employment of general maintenance techniques to keep tation of these various financial processes, “We were the system running as efficiently as possible, coordinat- the mediator and sometimes the ‘policemen,’” said the ing interfaces with other company data systems, and former director. “Our role included making sure the re- scoping out plans for future investment and develop- gional finance group and their business partners/leaders ment. These duties often involved partnering with both remained on track, and facilitating discussion between internal and external IT resources. them and the CFO/CEO.” While the organizational structure worked, the He cited the example of their process for finalizing former director said there was room for improvement. the annual budget, which included a fair amount of “I thought at times that the process would have been negotiations between corporate and regional stakehold- improved if the FP&A resources in the field were report- ers. FP&A helped moderate that conversation, some- ing to me directly,” he said. “The reporting relationship times through multiple management sessions. “Our role dictates your priority and how you get things done. We included reminding the CFO and CEO of their own would have had a little greater control over embedded deadlines, and going back and forth with business units FP&A resources, perhaps better cooperation at times, on corporate demands/needs vs. their realistic capabili- which would have helped the corporate group to be ties,” he said. “You have to manage both sides of that more efficient. I would prefer not to endure last minute equation to keep everyone on track.” scrambles to pull things together, which sometimes hap- Corporate FP&A also functioned in an advisory pens when you have a lesser degree of overall control.” capacity to the regional finance teams. “We assisted from The distributed model, however, is very common in an analytics perspective,” said the former director. “We many organizations, according to the former director. put our independent eyes on what they were doing and “The tendency is to, at some point, take FP&A func- how they were preparing, providing feedback and sug- tionality and distribute it into the business, either under gestions to them prior to negotiations. We’d tried—not local finance leaders or some other reporting structure,” always successfully if they were resistant—to help our he said. “That’s a somewhat natural phenomenon be- colleagues before they got into the room, to get to what cause in a lot of cases, FP&A activity is a natural, logical we knew would be the most palatable articulations in the extension of other work that people are performing in eyes of corporate senior management.” the totality of a much broader role.”

Hybrid Case Study: only handled centrally, they would be outsiders. “They Intel Corporation would only swoop down when there’s a problem, raising Intel Corporation (Intel) designs and manufactures defenses even higher.” integrated digital technology platforms and develops and On the flip side, this structure does increase the sells software and services primarily focused on security outright cost. “You aren’t operating at optimal scale. and technology integration. The Santa Clara, Calif.- While it may cost more, the return on investment is based company boasts net revenue in excess of $52 bil- much higher,” Hill said. “You find that you’re saving lion, and employs 107,600 people, of which 55 percent money or supporting better investment decisions all are based in the U.S. over the company.” At Intel, FP&A is organized as a hybrid function. Intel’s finance group tracks the cost savings and cash “Almost all the organizations have expense and capital savings resulting from its work, for example, finding analysts who are part of FP&A function,” said Brice cheaper ways to do things or eliminating unnecessary Hill, vice president of finance. Business units will have capital spend. “We’ll track that as an influence item to the other elements, e.g., revenue, cost of sales, and rationalize the structure,” he said. consolidation from a P&L perspective. The embedded Intel also tracks when important improvement recom- FP&A professionals report on a solid line to finance and mendations they make get accepted. “We assess how on a dotted line to business operations. much value we provide between savings and opportuni- The FP&A team at headquarters performs a fair ties,” Hill said. Pricing is one area where finance has amount of value-add analysis, including performance been able to add significant value. “We consult routinely management and development of decision-support re- on pricing. Many times multiple $100 million decisions ports for the CFO and CEO. The reports include com- are helped and directed by FP&A.” parative return on investment for the various business While the structure works very effectively, “There units, milestones performance, and providing manage- are always opportunities to improve,” Hill said. One ment with the right metrics. such area is the ability to create an environment that’s According to Hill, one of the less obvious outcomes of focused on milestones, not just budget management. embedded FP&A staff is creating a finance-oriented cul- “The FP&A team tends to get focused on managing the ture within the business. “If you embed finance people, budget and giving targets to the business units and ex- and their mission is to make sure decisions are financially ecuting to those targets.” Any discontinuous process that oriented including protecting the shareholder interest, deviates from normal budget is difficult to do. Having that process becomes embedded in the business,” he said. the capacity to manage those instances would provide The embedded FP&A teams provide indicators and additional value. metrics to the business leaders that reflect their progress Hill advises companies to enhance their analytics financially. “Make them part of the team and finance has teams if they are to truly provide value to business and an automatic equal voice in the decision-making process, finance leaders. Having the right analytics team means affecting the culture of the business.” being able to support shifting resources to the best Embedding FP&A in the business allows the teams to return on investment. “I advise my peers to staff up their better forecast because they understand the operations. analytics capability to be prepared to answer the question “Your financial reliability, forecasting and control of of where the best opportunities are and measuring the spending—the things you care about from a stewardship business performance and return on invested capital,” he perspective—go up significantly when you understand said. In addition, that beefed up capability allows FP&A the market, the technology, and the tools the engineers to make cost-savings recommendations. “Whether want to buy,” Hill explained. “You have a much bet- embedded in the BU [business unit] or at the corporate ter chance of rigorously assembling the forecast and level, making recommendations to improve cost struc- supporting business decision-making.” If FP&A was ture or to allocate resources more wisely is critical.”

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The Emerging FP&A Organizational Structure As companies grow larger and more complex, the FP&A reporting. However, in addition they support the busi- organizational structure often evolves into a hybrid model, ness units. By moving the COE offshore, companies can including elements of standardization and a skill set hub, in do more with the same budget. addition to proximity to operations. But the COE trend goes beyond process efficiency. Because hybrid operating models for FP&A typically in- “What we’re seeing is that finance is no longer solely volve a bigger headcount, companies are increasingly trying focused on trying to reduce cost,” Brennan said. “There to maximize the return on the model by creating true centers was a lot of cutting in the early 2000s, and while com- of excellence (COE). “Larger companies are moving FP&A panies are trying to do more with less, today’s question into a SSC, or center of excellence, possibly offshore,” said is how to support the business’ growth objectives while Miles Ewing, principal with Deloitte’s consulting finance containing cost.” He added that “sometimes for global practice. According to Ewing, the activities that take place businesses that means reconsidering where a function, in the center of excellence include a lot of the budget review, such as business analysis, should be located to meet variance analysis, and report creation. “Things that do not overarching business needs.” require an MBA,” he said. “Companies that have enough FTI’s Datta provides one multilayered model for lead- scale benefit from centralizing those activities.” ing edge FP&A organizations, which includes elements Accenture’s Brennan adds: “The COE does a lot of the of the hybrid model, combined with SSCs and COEs more routine activities that happen within FP&A, for to increase efficiency and allow corporate level FP&A to example, data gathering, variance analysis, and routine provide more decision support analytics.

Common Performance Metrics Activities Outcomes Thin Group Layer • Global Policy & Strategy • Business Decision Support for Local • Delivery of Strategic Corp. Objectives Planning in Global Operations • Internal and External Compliance a • Shared Services for FP&A (e.g., sharing or External Legal Requirements transferring some cost accounting to operations) Common Process Standards Centers of Excellence or Competency • Special Expert Knowledge Centers, • Centers of Excellence that are Co-located Either Permanent or on a Project Basis or Involve Virtual Teams that Provide Services on a Global Basis • Services Provided on a Global Basis • Communities of Practice Around Experts and Topics that are Pressing for the Company Regional/In-Country Shared Service • Drive Economies of Scale for Appropriate Activities • Advanced FP&A Technologies that • Consolidation and Standardization of Enable Fewer, More Skilled People to Technologies, Activities, and Processes Provide Rich Analytics • Elimination of Duplicate Activities • Organizational Design that Promotes • Local Legal and Statutory Requirements Growth and Flexibility Common Data Standards Data Common • Drive Efficiencies via Repeatable Process Thin Business Layer (Initiative-Focused Business Partner) • Outcome-Focused Business Partners • Performance Management that Combines Historic and Forward-looking Information • Decision Support for Business Priorities that: Delivers Predictable Indicators of • Aligned to the Business Growth, Dampens Earnings Surprises, and Provides Measures for Monitoring the Entire Operating Framework

Common Chart of Accounts

SSC Case Study: Littlefuse The SSC provides “a really nice advantage for us; we Littlefuse Inc., headquartered in Chicago, is the world’s can cost-effectively support special projects because we leading supplier of circuit protection products for the have the option to pull people quickly as needed. The electronics, automotive and electrical industries. With more value they can add, the better they become in their over 7,500 employees globally, the company operates in job,” Smith said. the Americas, Europe and Asia-Pacific. In 2013, total At the corporate FP&A level, Francis and Smith pro- revenue was almost $800 million with approximately 64 vide decision-making support and analysis to the CFO, percent of sales from international customers, including CEO and COO. Corporate is also charged with rolling approximately 20 percent from China. up the quarterly forecast and budget. The company When Mark Smith, director of corporate FP&A, joined leverages a global SAP implementation to run FP&A the company in 2004, Littlefuse didn’t have an FP&A func- analytics and the annual plan consolidation. tion. “It was mostly an accounting function with some level The benefit of this organizational structure has been of financial support,” he said. The company built the func- the team’s ability to focus on high-level FP&A work. tion from scratch, and it has grown along with the business. “We spend 80 percent of our time working with the Corporate FP&A now includes two senior professionals: business units,” Smith said. “That’s where we add the Smith and Brian Francis, manager of finance. Francis reports most value.” The Philippines team, Francis and Smith to Smith, who in turn reports to the CFO and a team of six travel extensively to meet with operations. FP&A professionals at a Philippines SSC. “We’re not bogged down with a lot of transactional ac- With the economy down in 2009, Littlefuse made counting functions,” Smith said. “Having a global struc- a corporate push into shared service centers (SSCs). ture allows us to be very focused on internal customer For FP&A, the team of one manager, two supervisors support.” The drawback may be the lack of direct link- and three analysts supports the global operations, and age with factory controllers. “There are some competing reports directly to Smith and Francis. “While they’re priorities with some of the people we need help from,” based in the Philippines, their role is not to support the Smith said. “As we grow, we may manage those resources local manufacturing operations, but the global business more directly.” units,” said Smith. “We’ve centralized our cost center Added Francis: “The upside of being so functionally planning work. Now the timeline schedule and inputs embedded is that we can be hands on with the business are centrally managed by us, leading to faster results and units. We can be heavily involved in taking the company less discrepancies in terms of assumptions.” in the right direction, affecting the bottom line and Having a team in Asia means the U.S. corporate team corporate strategy.” Going beyond traditional forecast- can get things handled overnight. While the Philippines ing and budgeting “makes our jobs really exciting,” he team is not physically embedded in the business units, said. The possible drawback is sometimes being “stuck” they are embedded from a functional standpoint, accord- between business units’ and senior management’s priori- ing to Smith. “With people traveling so much and the ties and interests. “We’ll get pressure from business unit use of technology, we found that you don’t have to be in teams on the projections and bonus structure.” FP&A the same location,” he said. has to balance supporting the business units with some- The Asia team does a lot more than just transactional times policing deadlines and targets and providing the support; they have a real say in how the company runs its business with aggressive goals. business. “Our greatest focus is marketing, sales and R&D,” Smith’s advice to other companies: “The key for Smith said. While FP&A handles all the forecasting and FP&A is to focus on [internal] customer service.” For analytics for these functions, there are some activities that the function, that means an organizational structure happen at the operations level. Each factory controller pro- that best aligns with the goal of supporting the business. vides a forecast of how their P&A will look, and input into “The more you are viewed as adding value to your cus- the next year’s budgeting process. In turn, “we work with tomer, the greater the credibility FP&A can garner and the operations teams to manage expense vs. the plan.” the broader its role can be.”

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Best Practices Examine the external and ferent skill set. Said AFP’s Kalish: “Accounting is about internal environment being right. FP&A is about being good.” To create the right organizational structure, companies need to first examine their market characteristics, growth Review the approach trajectory and operational complexity. “You should “People should take the opportunity to not be satis- look at what type of FP&A organization fits those three fied with how things are set up today, but instead con- dimensions,” said Accenture’s Brennan. “Based on those sider what the best structure is going forward,” Kalish factors, companies can decide which finance model char- said. That means creating the resources to support the acteristics would be most successful.” growth of the business, typically by embedding staff at the business unit level. In contrast, companies that find Acquire the right tools. they don’t get the bang for the buck by having corporate Technology is critical to collaboration between head- and embedded staff may want to revisit their approach quarters FP&A and finance staff at the business unit and pull more activities into the centralized function level. “There are tools that enable this collaborative mod- to create economies of scale and reduce cost. “FP&A is el,” FTI’s Datta said. At the high end, systems like SAP always asking why,” he said. “This can be viewed as an and Hyperion provide the integrated support companies opportunity to ask: ‘What is the best structure to sup- need. But increasingly, companies (even large ones) turn port the operations?’” to FP&A cloud solutions like Adaptive Planning and Host Analytics, and collaborative tools like Wdesk. Tie business and FP&A closely together Given the decreasing cost of having a collaborative Another possible best practice is leveraging other system in place, “There are no excuses not to implement groups and functions within the organization to find it,” said Datta. “FP&A cannot perform its role without ways to streamline the process. “That’s given rise to good technology.” Underlying the analysis is data, and greater collaboration between FP&A and treasury, risk the ability to create, collect and analyze it. “If you don’t and accounting,” Kalish said. “Companies should have the organizational structure, good analytical capa- explore ways to better tie these groups together to bility in terms of technology and people, you’re not able increase efficiency.” to get out the key reports.” Kalish has, in fact, noticed a trend in the market Added the former FP&A director at the consumer whereby FP&A is “gobbling up” more and more activi- products company: “Trying to manage FP&A globally ties and functions, in particular treasury. Some of the through spreadsheets becomes limiting—you often don’t touch points are obvious, for example in streamlining get the granularity you might like, reaction time is rela- the forecasting process to include a balance sheet and tively slow, and greater room for human error exists.” income statement. “We’re definitely seeing growth in the number of Separate accounting from FP&A people who oversee treasury and FP&A,” he said. According to the former FP&A director, for a compa- “Partly it reflects the fact that both FP&A and treasury ny that’s building up its FP&A capabilities, the function are cost centers. And while FP&A is growing, treasury should be clearly differentiated—at least at the corporate groups are either stagnant or getting leaner.” level—from the accounting function and have a direct reporting relationship to the CFO. He also suggests structuring the reporting lines so that FP&A activities, wherever they’re performed, are directly accountable to the corporate function. This trend reflects the fact that accounting is backward-looking and involves a very dif-

Conclusion To ensure your organization has the right mandate the entire company’s performance, often second in com- and structure, Robertson encourages his peers to in- mand to the CFO,” Datta said. “The FP&A value-creating vest the time to plan for the FP&A function. “Under- model requires that companies understand the right service standing what your customers’ needs are, both now level within the organization. They have to bridge the gap and in the next 1-2 years, helps define the potential between operations and corporate leadership.” scope of FP&A’s activities,” he said. He focuses on the To be successful, corporate FP&A teams must not be company’s market and the pain points in the busi- viewed as an entity with its own agenda. “It’s critical that we ness. “Organize your plans for processes, systems, and provide an unbiased view to support strategy, and this should people into a 2-3 year plan that shows how FP&A can be done in a culture with very low political risk,” Garis said. help management make better decisions. Use this plan If done correctly, a developed FP&A function can provide to test your assumptions and build organizational that critical reality check an organization often needs to sup- commitment to partnering with FP&A. Based on this port and affirm management’s decision-making. plan, you can identify the organizational structure According to Garis, it’s important to have senior manage- and budget optimized for your company at that mo- ment’s support for the organizational model. “Senior lead- ment,” he said. “As markets, customers, technology, ers should recognize the need for an independent, agnostic leadership, and companies evolve, make sure FP&A is view of the business,” he said. “That includes individuals where it needs to be.” who are willing to embed themselves in business units, The key to building the right operational struc- sales, cost, and corporate development to provide ‘spin-free’ ture is organizing to best serve internal customers insight regarding corporate performance and strategy to the and external reporting. “FP&A is a mouthpiece for decision-makers.”

About the Author Nilly Essaides is Director of Practitioner Content Development at the Association for Financial Professionals. Nilly has over 20 years of experience in research, writing and meeting facilitation in the global treasury arena. She is a thought leader and the author of multiple in-depth AFP Guides on treasury topics as well as monthly articles in AFP Exchange, the AFP’s flagship publication. Nilly was managing director at the NeuGroup and co-led the company’s successful peer group business. Nilly also co-authored a book about knowledge management and how to transfer best practices with the American Productivity and Quality Center (APQC).

About the Association for Financial Professionals Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury ProfessionalTM and Certified Corporate FP&A ProfessionalTM credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash IndicatorsTM serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.

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