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Strategic planning is the creation of a plan or plans to get a company from where it is now to where it wants to be.  Ultimately, the CEO is at the center of this process.  However, the CFO is a very key participant in the planning process by expanding on the CEO’s general strategies, as well as ensuring that the financial constraints surrounding the strategy are not unrealistic or unduly risky.

A skilled CEO will drive his business to take advantage of a perceived change in the marketplace, a new technology, a new market, or other factors that could improve the company’s competitive advantage in order to improve both the size and percentage of the profit margins.  A CEO that can do this with excellence can be tremendously valuable to a company, obviously.  However, they often times are not skilled on filling in the details of the execution of those plans.  Certianly, vision and innovation are necessary.  But, they are different than execution.  And, without execution, you have a great idea without any great results.  Results are the only thing that matter!

Without question, the CFO is more knowledgeable about the finances, processes, and risk mitigation needed to achieve the strategic vision of the CEO.  The CFO will fill in the details of the strategic plan, see if it is viable, test it, and advise the CEO on potential changes to the plan or alternative plans in order to achieve the desired result based on the details of the execution.  Sometimes, the CFO even takes over the strategic planning direction if the execution is complex enough.

Now, are there CEOs that get results even without worrying about the details or without a seasoned CFO?  Sure.  But, I can also go to Vegas and bet on black and potentially get good results.  But, drawing the conclusion that betting on black has no risk because I achieved good results would clearly be very foolish.

There are probably many textbooks or academics out there that would have a very large list and many chapters on strategic planning, but, personally, I think it boils down to these three steps:

  1. Define the Desired Result.
  2. Understand and Analyze the Current Capabilities of the Company.
  3. Develop a Plan Based on a Very Clear and In-Depth Understanding of #1 and #2.

At the end, there should be a documented, detailed plan that spells out the steps of getting from point A to point B.  Point A is where the company is now.  Point B is where the company wants to be.  The Company’s capabilities might need to be enhanced or shifted depending on the plan to get to point B.  Obviously, the CFO must determine what costs that may involve, and, what the ROI are on those costs.  In other words, bringing the company from point A to point B will result in a monetary benefit of $X.  And, the execution of the plan to get from Point A to Point B will cost $X.  Therefore, the ROI of the plan is $X.

Don’t overcomplicate things.  The more complex, the more risk that the execution will be botched – and this means more cost, or even worse, complete failure.

You can stop reading here if this is enough high-level information for you.  If you want to take a little bit deeper dive, keep reading. 

As a company CFO, I need to understand the different types of strategies.  A company might choose to pursue a completely unique strategy, or it might incorporate elements of several major categories.  Either way, at least one of the following themes will probably be in the plan:

  1. Product or Service – different pursuits of strategy might be:
    1. Creating a product or service that is superior to the competition;
    2. Extending the existing offerings of products or services;
    3. Beating the competition on price;
    4. Delivering the product or service faster than the competition
  2. Marketing – different strategic initiatives might include:
    1. Branding;
    2. Expanding the market – geographically, generationally, etc.;
    3. How the product or service is delivered, e.g. via the internet vs. brick and mortar
  3. Financial Engineering – improving financial health through strategic transactions or operational changes
    1. Roll Up – Rolling up several companies in a fragmented industry, thereby creating a company that is firing on all cylinders;
    2. Acquisitions;
    3. Splitting up – ridding the company of products, services, or divisions that are not in line with overall company strategic goals
  4. Technology
    1. Disruptive Technology – creating a technology that is so disruptive to the market that competitors start to die;
    2. Licensing – selling value to someone else that can capitalize on what you have; you cannot (or don’t choose to) – but they can.

As the CFO, I can limit the company’s discussions and save time by putting boundaries around the financial capabilities of the company.  This will, in turn, limit the number of strategies that can be considered.  However, the lack of cash does not necessarily count out expensive strategies, it just means that those strategies are beyond the current capabilities of the company.  This is where I need to go out and raise capital for the company and carefully determine the company’s capital structure, cost of capital, and ROIs.

The CFO and the company’s management have to be on the same page and have to walk step and step through the strategic planning process, such that the execution of the strategic plan are based on realistic action steps that the company has the ability to competently perform.

For further reading on what a CFO does read HERE.


Dan Lucas
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