Identifying a strategic CFO comes down to one thing: the efficacy of their plan. But can you tell if your CFO has the strategic prowess to devise a plan that will work? In this article, you’ll have that, as well as other questions surrounding CFO strategy. Continue reading to learn more about how strategic CFOs plan for success.
Step 1: Identify Weak Points
One of the most important steps a CFO can take is the first: identifying what’s wrong with a company’s current strategy. But how can a CFO include this critical step in their planning? And what should the strategic CFO implement to ensure your company has a concrete plan rather than just a list of unclear goals?
Identifying the Difference Between a Goal and a Plan
Having a goal is essential to achieving success and developing a plan, but if it’s all you have, your strategy won’t get very far. Identifying the goals that don’t have actions attached to them is one of the strategic CFOs most important steps. Listing goals is not enough. To achieve your company’s vision, you must create the right conditions to support those goals.
Identifying a Lack of Clarity
Having a list of objectives is also essential for a company’s strategy. It takes having goals one step further and attaches actions to them. But having too many objectives can convolute yoru strategy. Creating a strategy that focuses on a short-list of preferred goals is an important step to take when creating a strategy.
Failure to Face Challenges
Identifying and strategizing against challenges is as important as identifying your goals and creating a strategy around them. Your goals will not go according to your plan and you need to learn how to adapt to a moving mark. Obstacles and challenges to your strategic plan are too often swept aside in favor of blind optimism. Unaddressed challenges are as ineffective as having no plan at all.
What Are the Benefits of Strategic CFOs Planning?
When your company has a strategic plan they can execute, it improves your organizational performance. As one study found, strategic plans drive positive outcomes in the face of challenges. You will also generate data to support your company’s decisions.
Generate Meaningful Data
Having a plan in place that tracks all of your progress means you will be able to generate meaningful data as reference points. You will be able to use this generate to impact decisions about your employees, customers, and overall business.
Maintain Your Focus
Having a strategic plan leaves little to no room for guesswork about your company and team focus. Being able to analyze the data will help you hold your team fully accountable when they want to try something that’s not aligned with your strategy.
Employee Engagement and Improved Communication
Organizations with shared visions are the types of companies that succeed. When that vision is communicated consistently and concisely, leaders within the organization can take ownership over their responsibilities. The more specific and communicable your goals, the more engaged your employees will become.
The strategic CFO is a master resource allocator. They will be able to budget effectively and adapt to changing business conditions that affect your overall strategy. Effective CFOs understand the integral link between your budget and goals and they will structure your budget to fit these goals. To put this into perspective, a company with organizational infrastructure and cash reserves in the beginning of 2020 would have had the ability to adapt during the pandemic.
What Are the Components of Strategic CFO Planning?
To decide whether your strategic CFO is effective, consider whether their plan emphasizes the following components.
Cost-based planning has traditionally been one of the most important first steps in strategic planning. However, increasing revenue is just as important, if not more important, than decreasing costs.
Understanding where to unlock new revenue streams will help your company take a step forward in your strategy. It determines which initiatives drive the most sales, and helps you identify where to put the most energy and emphasis in your strategy. With strategy, one of the most important things you can do is identify your risk versus reward on each move. Understanding your revenue is critical for this.
As a Mckinsey study suggests, investments in strategic revenue growth management create “shifts toward higher growth revenue and profit pools.” Shifting focus this way can reverse a downward trajectory and put companies on a clear path to revenue growth.
To increase your revenue, follow these steps:
- Set clear goals: As with any strategy, clear goals are essential for increasing your revenue. Identify the metrics by which you want to increase your revenue. Collaborate with your leaders to determine what increased revenue goals they have.
- Create repeat customers: Identifying company initiatives to create repeat customers is one of the most important steps to increasing revenue. It’s the most cost-efficient. Signing on a new customer is always more expensive than keeping a customer.
- Revisit your pricing strategy: You can create targeted pricing strategies by analyzing your regions, distribution channels, and inventory. You should structure your revenue strategy around improving these areas.
2. Analyzing Competitors
Yes, you need to look internally to identify objectives for your strategy, but don’t forget to look externally. The most successful companies analyze what competitors have done well and adopt their strategies. They also understand how to highlight the differences between their competitors. Doing so guides your organization to make strategic investments that align with your unique selling points.
You also need to assess the threat-level of your competitors. You can do so by asking the following questions:
- Does your company have brand loyalty?
- Does your company have the benefit of economies of scale?
- Does your company sell a patented or unique product?
After assessing your unique attributes and comparing them to other companies’ strengths, you should consider how these unique attributes affect your overall finances. How do these unique points fit into your company’s overall strategy?
A business is not a business without customers. However, CFOs often don’t become focused on customers until it’s too late and their company is already in a trying financial period. During typical times for a business, CFOs will spend around 5-10% of their time with customers. When a crisis strikes, they shift their focus. Strategic CFOs will spend more time with customers before trying financial times.
Understanding your customers is the most effective way to devise a recovery plan. The CFO should also understand the broader impact of their financial planning and analysis (FP&A) on customer relationships. After all, consumer interest is what determines whether you can generate a consistent revenue stream.
Ask yourself the following questions to determine the health of your customer relationships:
- How dependable are my existing customers?
- What do my customers need to be more satisfied?
- Will customize recognize the solutions we provide?
- Can our customers easily access the value our solutions provide?
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