The Importance of Starting the New Year with a Clear Strategic Plan
As we approach the end of the year, it is crucial for organizations to reflect on their achievements and challenges and prepare for the year ahead. As a CFO, I understand the significance of commencing the new year with a clear strategic plan. Strategic planning is not just a task for the CEO and the board; it is a fundamental responsibility of the CFO. In this blog, I will discuss the importance of strategic planning from a CFO's perspective and outline seven key measurements that I believe are essential for tracking in the coming year.
The Role of the CFO in Strategic Planning
The role of the CFO has evolved significantly, from being a financial gatekeeper to a strategic visionary. Today, CFOs are expected to be more than just number-crunchers; they are strategic partners, playing a pivotal role in shaping and driving a company’s future. Strategic planning is a fundamental aspect of this transformation, as it enables CFOs to allocate resources more effectively, drive growth initiatives, and manage risks. Strategic planning is not just about financial planning; it is about understanding the broader impact of business decisions and guiding the company's future based on facts rather than guesswork. A well-crafted strategic plan can be a tremendous benefit to the company, as it fosters healthy business practices that drive organizational performance. Therefore, it is imperative for CFOs to prioritize strategic planning and ensure that the company starts the new year with a clear and comprehensive strategic roadmap.
The Benefits of Strategic Planning
Strategic planning done right can have a positive impact on organizational performance. It provides a framework for making better decisions, optimizing resource allocation, and driving growth initiatives. In the face of economic shocks and market uncertainties, a well-defined strategic plan enables companies to pivot quickly and remain agile, ensuring their survival and success. In the current business landscape, characterized by rapid technological advancements, geopolitical shifts, and changing consumer behaviors, strategic planning is more critical than ever. It allows companies to future-proof their businesses, identify growth opportunities, and navigate challenges effectively. As a CFO, I firmly believe that strategic planning should be a top priority, and I am committed to partnering with the CEO, the COO and the board to ensure that our company has a robust and actionable strategic plan in place.
Key Measurements for the Coming Year
In the coming year, there are seven key measurements that I, as a CFO, will track closely to gauge the company's performance and ensure that we are on the right path to achieving our strategic objectives. These measurements encompass financial, operational, and human capital aspects, providing a comprehensive view of the company's health and progress.
Revenue Growth: Revenue growth is a fundamental indicator of the company's performance and its ability to capture market opportunities. As a CFO, I will closely monitor our revenue growth rate and assess the effectiveness of our sales and marketing strategies in driving top-line growth. It is not enough to just track the top line revenue growth as that will only tell you an absolute increase or decrease in revenue. The CFO must peel back that onion and understand which products or services are selling and which are not, what geographic regions are performing to plan, and which are not and on an individual level which account reps are performing and who is not. A lack of sales growth can be attributable to many factors, among them poor account rep or sales manager performance, poor pricing strategy, ineffective marketing campaigns etc. It is the CFO who must drill down to find the root causes if the company is going to be able to take corrective action in time to course correct for the new year.
Cost Optimization: Cost optimization is essential for improving profitability and ensuring efficient resource allocation. I will track key cost metrics and identify opportunities to streamline operations, reduce unnecessary expenses, and enhance overall cost efficiency. Not just which expense ratios are out of the norm, but measurements like inventory turnover, material shortages and overtime wages by department just to name a few. The answers to the questions on performance are always found in the numbers.
Cash Flow Management: Effective cash flow management is critical for sustaining the company's operations and supporting its growth initiatives. I will focus on monitoring cash flow metrics, optimizing working capital, and ensuring that we have sufficient liquidity to fund our strategic priorities. This includes making sure the billing function is efficient, or the credit policy is working, and bad debt is low and that our accounts receivable is collectable.
Customer Acquisition and Retention: Customer acquisition and retention are vital for long-term success. I will assess our customer acquisition cost, customer lifetime value, and customer retention rate to evaluate the effectiveness of our customer relationship management strategies.
Talent Acquisition and Retention: Attracting and retaining top talent is a strategic imperative. I will track key human capital metrics, such as employee turnover rate, time-to-hire, and employee satisfaction, to ensure that we have the right talent in place to execute our strategic plan.
Technology Investment ROI: Technology plays a pivotal role in driving operational efficiency and supporting business growth. I will evaluate the return on investment (ROI) of our technology initiatives and ensure that our technology investments are aligned with our strategic objectives.
Market Share and Competitive Positioning: Understanding our market share and competitive positioning is essential for assessing our performance relative to industry peers. I will analyze market share data and competitive benchmarks to identify opportunities for market expansion and differentiation.
By tracking these key measurements, I aim to provide the leadership team and the board with actionable insights into the company's performance and ensure that we are making progress towards our strategic goals. As a CFO, I am committed to leveraging these measurements to drive informed decision-making and support the company's long-term success.
Now that I have my strategic plan in place how can I assure that we achieve it?
To ensure that their strategic plan is aligned with the company's goals and stays on track, a CFO should take several steps, as follows:
Link Budget to Goals: Linking the budget directly to the company's strategic goals can help ensure alignment. This makes it easier to adjust the budget when priorities or circumstances change, allowing the company to stay on track with its strategic objectives
Align Activities with Goals and Strategy: CFOs can drive high performance by ensuring that their activities are properly aligned with the organization's goals and strategy. This involves practical steps to ensure that financial and operational activities are coordinated with the company's strategic direction. The best way to achieve this
Understand Differentiation Points and Competitiveness: It is essential for CFOs to understand the organization's differentiation points and its competitiveness in the market. This knowledge can guide investments in product development initiatives to beat the competition and ensure that the strategic plan is aligned with the company's market position.
Some common mistakes that CFOs make when aligning a strategic plan with company goals include:
Filing Away the Plan: A common mistake is to spend time creating a strategic plan and then file it away. Instead, the plan should be kept top of mind to increase the likelihood of materializing results and should be reviewed every month in context with the financial statement and budget reviews.
Calling a List of Goals, a Strategic Plan: Simply listing out goals because they sound "good" without a basis can lead to a weak strategic plan. Goals should be based on an understanding of the organization's strengths, weaknesses, opportunities, and threats. Conduct a SWOT but invite a healthy cross section of departments and team members to share what is working and what is not…on a departmental level.
Lack of Execution: One of the most common failures of strategic planning sessions is a lack of execution. It is essential to assign action items to individuals and set up mechanisms for follow-up and accountability to ensure that the plan is implemented. There are many systems available to do this. We have been using OKRs. OKR stands for Objectives and Key Results, which is a goal-setting framework used by individuals, teams, and organizations to define measurable goals and track their outcomes. It was introduced by Andrew Grove and popularized by John Doerr and has been widely adopted by companies such as Google, LinkedIn, Twitter, Uber, Microsoft, and others. The framework involves setting an objective, which is a significant, concrete, and clearly defined goal, and 3-5 key results, which are measurable success criteria used to track the achievement of the objective. We will dedicate an entire issue to OKRs in the coming weeks.
Not Starting with the Strategic Plan: Preparation plays a key role in the success of a strategic plan. It is a mistake to not start with the strategic plan and give yourself plenty of time to get the right players on your team and to secure the necessary support. So many companies develop a flowery Mission Statement and turn it into a poster in the lunchroom and that is that. One key often overlooked is Vision Statement. The Vision of the company is future oriented and describes to all associates what the future organization will look like, thus it informs us of, among other things, what markets we will be in, what products or services we will offer and most importantly, how we will get there.
Weaknesses in Balancing Optimism and Realism: Some CFOs make the mistake of adopting a negative outlook and downplaying possibilities, which can have detrimental effects. It is important to strike a balance between optimism and realism to be an effective CFO.
By being aware of these common mistakes, CFOs can take proactive steps to ensure that their strategic plan is effectively aligned with the company's goals, ultimately contributing to the organization's success and long-term sustainability.
In conclusion, strategic planning is a fundamental responsibility of the CFO, and it is essential for companies to start the new year with a clear and comprehensive strategic plan. By prioritizing strategic planning and tracking key measurements, CFOs can play a pivotal role in driving the company's future success and ensuring that it remains agile, competitive, and resilient in the face of market uncertainties. I am confident that by focusing on these key aspects, our company will be well-positioned to achieve its strategic objectives and deliver sustainable value to its stakeholders
