Achieving Your Firm’s Strategic Vision — October 2016

This post concerns Strategy and Budgeting.

Many successful firms owe a great deal of their success to the implementation of a sound strategic plan and achieving the related benchmarks and goals. While the CEO is responsible for the broader aspects of this effort such as vision, mission, and goals, the CFO can play an important role. This role is critical and the resulting plan is often expressed as a budget in conjunction with a written narrative. In performing this important work, the CFO must understand both internal and external dynamics of the firm.

In our view, the CFO must first establish a framework to align the plan with the firm’s overall strategy. This effort entails identification of both long term and short term targets. It is important to link the targets to external events which are correlated with the firm’s performance. Moreover, the impact of specific critical projects must be explicitly recognized. While utilizing a quantitative approach to the firm’s performance, the CFO must also create a means to evaluate and track strategic endeavors that are not measured in financial terms. Such endeavors include R&D as well as new product development. We recommend that benchmarks be developed as a means of measuring progress.

Once the framework is developed, the CFO must focus on providing the CEO with information in regard to major issues. The information should be presented in the context of the CEO’s vision. Such information might include details regarding: competitive advantages in cost leadership or product differentiation; broad and niche markets; growth opportunities; and under-served markets. Another approach might be to provide information about initiatives related to the overall strategy, products, and geographic expansion. We think the information should provide insight by utilizing best case, worst case, and most likely case scenarios. In addition, the CFO must make sure to provide for flexibility which incorporates the effects of changes and contingencies such as events in Asia and Europe or U.S. elections.

After appropriate consideration to the foregoing matters, the CFO should set stretch goals that drive creative thinking. Such goals should encourage action and strategic thinking at the business unit level. The goals should also stimulate efforts to develop diverse competencies as well as leveraging existing capabilities.

The budget that is developed using this approach must be designed to provide a quantitative means to facilitate the evaluation of strategic success and adopt to unforeseen conditions. This effort entails blending the strategic plan with business unit planning, budgeting, management information systems, and benchmarks that denote success. Management should be able to evaluate business scenarios quickly and easily. The best budget, in our views, provides the ability to gauge results from both a top down and bottoms up approach.

Many successful firms owe a great deal of their success to the implementation of a sound strategic plan and achieving the related benchmarks and goals. While the CEO is responsible for the broader aspects such as vision, mission, and goals, the CFO can play an important role. This role is critical and the resulting plan is often expressed as a budget in conjunction with a written narrative. In performing this important effort, the CFO must understand both internal and external dynamics of the firm.

Capitol CFO Solutions serves clients in Washington, D.C., Maryland, and Virginia, Please contact us for a free consultation.