A changed lexicon points to a changed reality
Twenty years ago, I uttered some words to the wise. I told my seminar audiences that if they wanted to sound like an MBA or business consultant, they should, within the first five minutes of their presentation, use any of the following three terms: ‘business model’, ‘road map’, or ‘space’. Today, I would change my advice. ‘Agile’, ‘pivot’, and ‘new normal’ are the kings of the modern lexicon.
The changing environment has made the first three terms less relevant, while at the same time making ‘agile’ and ‘pivot’ much more so. The speed of change in business because of social media, digitization, artificial intelligence, the Internet of Things, and big data analytics, means there are no longer standard business models. This acceleration has rendered the concept of a road map less certain and more imprecise. Space generally refers to market segments in which a business competes, yet markets no longer have conventionally or clearly demarcated boundaries.
Tripadvisor, an online crowdsourced rating service in the hospitality industry, used its brand and internet platform to become an online booking agent for travel services. Quicken began by offering easy-to-use accounting software, and is now a leading lender to homebuyers and small businesses. It stands to reason that companies today must be more agile and prepared to pivot quickly to meet the challenges of Industry 4.0. New normal, meanwhile, has recently become prominent in business discussions because of Covid-19’s impact on us all.
The key job of professionals in financial planning and analysis (FP&A) is exactly what their name says. Through their operating cycle, they analyse the actual financial results to make sure that their company is making money according to its plan. If it’s not, they make expense budget adjustments to keep profitability on target. In normal times, these might be mere tweaks: anyone working in a big company is familiar with the chief financial officer’s fourth-quarter decree, “No more coffee and bagels at meetings”. That’s normal. But what about adjustments for the new normal?
I can only imagine what it must have been like for FP&A (and everyone else in a company), when the true nature of Covid-19’s impact on business was fully recognized. In February this year, I led a workshop for managers of a global manufacturing company. At that time, only those who worked in the company’s supply-chain function were talking about the impact of Covid-19 on their business. Stories of “problems with our plants or subcontractors in Shenzhen” were informally shared outside class. The people in other functions reacted with some sympathy. Yet who knew in February what was about to happen in March and April?
I imagine that when the full impact on revenue was recognized by a company’s senior leaders and FP&A, all steps for normal budget adjustments were thrown out the window. Hindsight is always accurate, but I wonder when and how each company began to seriously try to deal with the situation. It was a unique predicament. But, in future, nobody – especially FP&A – can use “unprecedented” as an excuse for not being prepared. Contingency planning should now become a major part of financial planning. Scenario analysis – a technique introduced by the oil and gas industry to take into account major disruptions – ought to be a regular exercise for FP&A.
In the next several years, as we try to cope with this pernicious pandemic, will FP&A’s usual way of planning and analysing effectively adjust to the new normal?