Industry Experience
FP&A Transformation
At Pepsi I helped lead a cross functional FP&A transformation effort to increase the predictability of the company’s earnings which was responsible for a significant premium on our share price (more below).
Global Impact
The transformation team drove a 25% global reduction in FP&A FTEs while improving reliability, transparency and accountability. The team achieved this by implementing enabling technology, process redesign and a functional reorganization. In addition, through training and career development, we elevated Finance to a true partner in the business and trusted advisor.
Trained Business Partners
Improvement in Quality of Analysis
Valuable lessons in EPM at Pepsi
My first employer after earning my MBA from Duke University. We commissioned a leading investment banking firm to understand what really drove our stock price and shareholder wealth. This was near and dear to everyone in senior management since their incentive bonuses inextricably linked to it.
In that study we discovered that a full 9 points of our Price Earnings Ratio (P/E) were tied to Pepsi’s Predictability of Earnings. Predictability in this case meaning we delivered the performance we said we would deliver – and did so consistently. It’s worth mentioning those performance targets were never easy to make. That 9 points of PE is worth close to $90 Billion in Market Capitalization today. Real money, real shareholder wealth.
How did Pepsi deliver that predictability?
Through its devotion to excellence in EPM. Our Annual Operating Plan (AOP) was different from the “annual budgeting process” you see in many companies. Senior Executives established the defined stretch targets which cascaded down through the entire organization, and every team was responsible for developing their own relevant plan to deliver it – in very concrete terms. Incentive compensation was tied directly to achieving the goals of the AOP and every month progress was reviewed. Forecasts for the balance of the year were also developed, and when their was a gap between projected performance and actual performance, the effort went into figuring out how to close the gap (while in many companies the effort goes into making excuses for the existence of the gap).
There was more to it, as you could imagine, but Pepsi was driven by well-conceived and well run management system grounded in effective operational planning and equally effective execution. Our role, in Financial Planning & Analysis, was to make sure that management system ran effectively while at the same time being an internal consultant to drive the business forward. It was only years later I discovered that this aspect of FP&A was somewhat unique to Pepsi, many companies engage Deloitte, McKinsey or other firms to do what internal FP&A resources did at Pepsi.
Here’s a personal example.
I was assigned to Pepsi’s Concentrate Operations group – the business unit that made and distributed the syrup that was sold to Bottlers around the globe. One day I was looking at a map of all our warehouses and a question came to me, “If we were starting with a clean slate, are these the places we’d put our warehouses? If not, where would we put them?”
We leveraged a Linear Programming model to arrive at the optimal warehouse configuration (loading up the longitude and latitude of all our customers and shipment volumes). The answer drove $60 million is savings over five years.
I could give dozens of more examples of how FP&A managers did far more than generate monthly reports and variance analysis, but helped “make a difference in the business”. This, I believe, is another key reason why Pepsi was able to attract ambitious people and make FP&A a value-added resource.