Strategy Overview
The CEO is the person ultimately responsible for the strategy that a company
follows. The CEO may drive a business to take advantage of a perceived change in
the marketplace, a new technology, a new market, or some other factor that the CEO
believes will give the company a competitive advantage in maximizing its market
share or profitability. The CEO can be very good at spotting these future changes,
but is perhaps less skilled in determining how to get from here to there.
The CFO is much more knowledgeable about the finances, processes, and risk
mitigation needed to achieve the CEO’s strategic vision. With this knowledge, the
CFO can perform the valuable role of filling in the details in the strategic plan, as
well as testing the plan to see if it is viable. In some cases, the CFO may suggest
alternative paths that can form the basis for an entirely new strategy. In the latter
case, the CFO is the person driving strategy.
There are many books whose sole focus is the development of strategy, headed
by Michael Porter’s superb Competitive Strategy. We do not attempt to repeat or
even summarize these books. Instead, we make note in passing of the general
concept of strategy, and then move on in the following sections to the areas in which
the CFO can most effectively participate in the formulation of strategy.
The process of developing a strategy can be grossly summarized into three steps,
which are:
1. Define the strategic goal. This can involve a study of the competitive structure of the industry, the entrance of new competitors, regulatory changes, how the company earns a profit, and many other factors that lead the CEO to target a particular strategic direction. This step also includes consideration of the expected strategies that will be followed by competitors.
2. Document the current capabilities of the company. This is an inwardfocused examination of the strengths and weaknesses of the business, from acompetitive perspective. This analysis can throw out many issues that have no bearing on the competitive posture of the business. For example, the ability to close the books in one day is usually not considered a competitive advantage, whereas a one-month product design cycle may be considered
quite important.
3. Develop a plan to reach the goal, starting with the company’s current capabilities. There must be a plan that states precisely how the business is to achieve its goals. This typically requires a tight focus on improvements in just a few areas. Attempting to improve all aspects of a business is usually much too difficult, and merely diverts attention and funding from the areas that really require improvement. Instead, focus on improvements only in those areas where the competitive advantage must be strengthened or supported.