12 ways to Drive Strategy and Value Creation
No matter the size of your business, the finance function should focus on STRATEGY and VALUE CREATION to create a competitive advantage and give leaders peace of mind.
Yes, annual returns need to be filed and past performance should be tracked… but the finance function should be agile, strategic, and relevant. This is increasingly the case with leadership under pressure from unpredictable economic conditions, demanding shareholders, and an ever-shifting regulatory environment.
What does it mean to have a strategic finance function? Led by an experienced and skilled Chief Financial Officer (CFO), let’s consider some of their priorities.
1. An Understanding of the “Business Drivers”. How is Value Created?
It may sound obvious… but the starting point is to get really clear on what is actually driving the business. How does the business make money? What is the business model? What are the returns on invested capital? What competitive advantage does the business enjoy?
Getting crystal clear on the basics is critical. They do change over time and sometimes get ‘lost’ in the busy world of management.
2. Improving the Drivers
Defining the drivers of the business leads to a conversation on how to improve them, such as finding sources of growth, operational improvement, and changes in the business model. The key question is, ‘What gains can the business expect from these improvements, at what cost, and in what timeframe’?
3. Reviewing Existing Information
What information can we access to support decision-making? Historical financial data can be valuable but the interpretation of that data provides much more insight. For example, recent sales figures may look great… but the sales team is worried about future competitive pressures or lost customers. It’s important that the CFO can gain access to this context.
External perspectives on the business and the marketplace are also valuable and can be obtained by talking to customers, investors, or professional service providers.
4. Filling Information Gaps
If there is insufficient information to make good decisions, the CFO will plug the gaps through additional management reports, one-time analytical projects, conducting market research, etc.
5. Understanding the Leadership Agenda
To shape critical business decisions, the CFO will spend the time with the owners, board, senior managers to understand their goals, risk appetite, plans, strengths, and weaknesses. The CFO is an active member of the management team and asks the ‘right questions’ to harvest important information.
6. Independent Voice
Although collaborating closely with management, the CFO maintains a certain independence and ‘thinks like a shareholder’. This can be challenging… but the CFO is in a unique position to use numbers to explain and justify a company’s strategic options and this builds credibility in decision-making.
7. A Well-Oiled Finance Function
To make time for strategic projects, CFOs rely on a high-performance finance function to provide accurate data and analysis. This is achieved through sensible use of Information Technology, limited manual processing, up-skilling finance staff, simplifying the organizational structure, measuring against benchmarks, and insightful reports.
8. Drive the Performance Conversation
The CFO ensures that business performance is at the centre of management discussions. They use dashboards, performance targets, planning processes, the company meeting cadence, and a lot of persistence to ensure business performance is the primary focus.
9. A Mentor (and a Mentee)
An experienced CFO will use their skills and experience to mentor others… but will also not be afraid to ask for advice. Sharing ideas (formally and informally) is an important basis for good decision-making.
10. Listen First then Act
A CFO will take a long-term view, even if there’s pressure to move quickly, and will avoid acting with incomplete or inaccurate information. This means balancing a healthy sense of urgency with prudent risk management.
11. Stick to a Few Priorities
To focus on strategy, it’s best to avoid clutter. Choose three to four important change initiatives and focus on them consistently. Be prepared to repeat the message over and over internally and externally. Stress the big picture themes and what can be achieved in the long term. Don’t get caught in the detail of many micro-actions or tasks.
12. Invest Time Upfront to Gain Credibility
Every business leader has to start somewhere… and has the challenge of building credibility.
In the role of CFO, credibility is built by thinking strategically. Compare the mentality of a controller, who is focused on compliance and control more than making decisions to help a company grow. Likewise, a focus on cost-cutting and squeezing margins may mean that strategic opportunities are missed. The CFO builds credibility by examining all ways of accelerating and maximizing value creation.
In summary, the CFO uses finance as a tool to drive business strategy and value creation. Even in a business without a dedicated CFO, this function remains important and leadership should allocate some of their time to this role, perhaps in conjunction with a skilled external advisor.