How finance can lead organisational resilience - The EE

How finance can lead organisational resilience

We all know the panoply of factors that make this such a difficult and challenging time to succeed as a business, but if there is one thing organisations need to survive and thrive today it is the resilience to withstand the buffeting winds of change. But what is resilience, how do we build it into the fabric of our companies, and how do we add value on top of it?, says Michael Lengenfelder, head of FP&A product management, Unit4.

Unit4 has just released a white paper talking about why organisational resilience matters and how senior executives can improve it. In this article I want to propose a few different variants of resilience and provide some concrete examples of practical ways to succeed.

For a template, we can look back to the pandemic lockdown as an example of resilience in action. The best organised companies were able to become virtual operators almost overnight, reshaping their productivity tools, collaborative systems and sales and marketing go-to-market operations. Many seasoned CIOs felt shocked by how fast things moved, feeling that they had packed years of potential progress into a few months.

So, how they did they succeed? Technology played a large part as cloud systems and conferencing tools filled the breach left by the absence of day-to-day physical interactions. Today, as we prepare for whatever comes next, we need to get the most out of our tech investments again.

But, for organisational resilience, we need to think ahead, examining the effects of potential hurdles and events, from the likely to the possible to the ‘black swan’ actions that can rock a business to its foundations. In business forecasting, we need to examine constantly and refine our views to anticipate next steps and best courses of action to take.

Here, financial planning and analysis (FP&A) software tools can help formalise the process by which companies organise themselves in this age of uncertainty. When a business or macroeconomic environment changes, you need to be able to adjust because the old way of working is no longer tolerable. FP&A provides a lens with which to see incoming change and provides the clues for CFOs to anticipate and act before it is too late. FP&A can also support power users, the ‘can do’ early adopters who love to lead and inspire their colleagues, so self-service is critical to provide access for a wide range of finance teams.

Of course, the fundamental pillars of managing P&L (profit and loss), balance sheet and cash-flow must be solid, but CFOs and others can then excel by using business logic and perhaps AI in sub-plans for deep granularity and insight. For example, plans could be tweaked or ‘sliced and diced’ to see results that are product- or region-specific. Smart CFOs will use FP&A tools to monitor where they make their biggest returns, what areas are trending up or down and to inform their strategic direction on an ongoing basis.

What do FP&A and F1 teams have in common?

As a point of comparison, consider an F1 engineer who is constantly thinking about what’s driving car performance, accommodating a vast range of metrics and dependencies. The FP&A team members are like F1 engineers and, just like their motor racing equivalents, they rely on high-quality data that is well prepared, clean, holistic, and timely.

More broadly, operational resilience can be aided by cloud systems that are always on, available for 24/7 access and with automation tools for fast data flows built in. Those flows must also be simple to edit for changing circumstances and they must be capable of integrating smoothly with other systems. This integration, between an ERP (enterprise resource planning) and FP&A module for example, is key to identifying deviations from expected results. And AI could again be very meaningful here, helping to automatically pre-populate forecasts and perform sales revenue planning based on live and historical data. Unusual movements can then be identified by a bot and zoomed in on by a human for deeper understanding and to recommend actions that need to be taken.

Smart tools plus smart people equals organisational resilience

Finance departments with finely tuned IT systems can constantly feel the pulse of the organisation and ride out personnel changes without missing a beat. But more exciting things are coming: the sheer on-tap compute power of cloud systems is making what were once viewed as premium tools available to mid-market companies.

Monte Carlo simulations that test hundreds or even thousands of possible events and their influence on outcomes were once the domain of high-powered financial institutions with vast datacentre capacity but, today, they are available to mid-market businesses that can rent the compute resources of an AWS, Microsoft or Google. A CFO can act like a data engineer to answer complex, multi-faceted questions such as ‘do we need new people on our teams?’ and figure out the cost implications of hiring with average salary costs per cost centre, HR spend and other factors included. A larger company could go wider, factoring in the potential impacts of a trade embargo on China, the knock-on effects of climate change on logistics and sourcing, forex changes, likely spikes and troughs in demand, the effect of a product recall and so on.

Michael Lengenfelder

Of course, not all aspects of organisational resilience are technology-centric but even softer factors can be measured and have key performance indicators applied against them. For example, to achieve cultural resilience, we need to hear from a wide range of voices so we must also consider a range of factors around diversity in gender, disability, race and social background.

CFOs and other executives today have the tools to plan for every eventuality. They must be constantly tuned in to environmental impacts that affect their businesses and ready to take actions from playbooks that can be edited on the fly. Human beings are capable of empathy, of communicating nuances and of learning from experiences, but adding the scalability, error-free computation and work ethic of machines provides an unbeatable combination. Add smart tools to smart people and the outcome is organisational resilience.

The author is Michael Lengenfelder, head of FP&A product management, Unit4.

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