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The Rise of the Strategic Finance Function
Lately, I’ve noticed a significant uptick in the number of connections I have on LinkedIn who now list Strategic Finance as their primary job description.
As someone who has spent nearly two decades helping organizations achieve greater competency in their Strategic Planning capabilities, I’m very excited to see organizations embrace this term and give Strategic Planning the credit it deserves.
Strategic Finance defined
Strategic Finance is a function within financial planning that, as the name implies, bridges the domains of Strategy and Finance; as well as Marketing and Corporate Development.
Strategic Finance is ultimately about taking a longer-term strategy and quantifying it, in a way that enables alternative future outcomes to be measured and evaluated so that optimal decisions can be made.
Based on this definition, I believe the Strategic Finance function is optimally suited to take on the ownership of the company’s formal Strategic Planning process. In doing so, these companies will elevate their Strategic Planning awareness and ensure that it does not get crowded out by other forms of short-term or historical analysis.
Why not keep a good thing going?
One of the biggest misconceptions I often hear is that Strategic Planning is a short, once a year exercise. Yet, I tend to find that optimal Strategic Finance functions seem to never stop. That’s because market opportunities, risks and the evaluation of new initiatives are fluid. As a result, we need to create a mindset that is always “screening” for opportunities and threats.
Simply put, if your organization has an efficient and effective process for evaluating new ideas that potentially create significant value for your organization, why wouldn’t you want to do more of it?
First and foremost, Strategic Finance requires a deep knowledge of financial analysis and financial modeling. Cash is King in Strategic Finance and that should never take a back seat.
Aside from these fundamental skills, I find the best Strategic Finance professions are both inquisitive and persuasive. These individuals aren’t necessarily product/market experts, nor do they need to be. Rather, they need to be able to ask the right questions in order to understand the big picture and communicate that message to others.
In telling that story, they also need to be persuasive amongst their peers. Sometimes that requires convincing others to agree with you and other times it just encourages others to participate by casting a vote or providing incremental feedback.
When it comes to hiring, I often I find that employers emphasize the need for Accountants or Research Analysts who have extensive years of experience in a particular field. Yet, these deep domain skills are often overkilled for the Strategic Finance function. Strategic Finance professionals are more like internal Investment Bankers.
Who should the Strategic Finance function report to?
We’ve now arrived at the Million-dollar question. Assuming that one of the primary roles for the Strategic Finance function is to manage the companies Strategic Plan, who should the Strategic Finance function report to?
Does Strategic Finance belong under FP&A or would it be more beneficial to treat it as a business partner to FP&A, where it can provide independent guidance? Clearly, we want to ensure proper alignment of Tactical and Strategic Planning, but we also want a strong balance of power, so we don’t crowd-out the importance of each.
Should Strategic Finance fall under Treasury or perhaps report directly to the CFO? I think one could make an argument for both.
Inevitably, I think the right answer will vary from company to company and therefore it’s probably best to leave it up to each organization to decide.
Strategic Finance is a financial planning function that brings together the key elements of Strategy and Finance as well as Marketing and Corporate Development in order to drive business growth.
Strategic Finance isn’t something new. The typical tasks associated with this function are often performed by individuals within the organization, but the problem is that these individual activities often lack the proper identity, independence, and congruency that could bring immense value to an organization if a proper Strategic Finance function was to be more widely recognized.
The article was first published in Prevero Blog.