Why Your Winning Strategy Needs to Come from Finance
When it comes to making corporate strategy the more informed the board is the better decisions they can make. And when it comes to informing corporate strategy you need robust financial and non-financial information and the evidence shows that tends to come from finance.
Evidentiary analysis of high value corporate decision making shows that the best performing companies tend to produce information that incorporates external market and predictive analysis. This represents a challenge for a lot of businesses as vital information yields little to no benefit due to finance only dealing with financial information and non-financial information being chaotically scattered across multiple business units.
In fact, in a recent survey produced by PWC and CFO Europe Research Services 57% of respondents rated their non-financial indicators as poor to adequate especially when it came to timeliness.
This is where finance must step up and talk to the business about taking ownership of the production of management information such as how non-financial indicators in their reporting packs address business needs, interact with other metrics and inform and support the strategy.
Poor reporting leads companies to under perform as their decision making process is impaired and less responsive to reported trends which then results in managers being less likely to trust the reported data in the first place. It’s a vicious circle and it can only be broken by giving greater responsibility to the quality, relevance and timeliness of information production to finance and investing in the right tools.
Typically performance and how well-informed a strategy is aligns with the tools used. Underperforming companies tend to use spreadsheets as the primary tool for management reporting and top-performing companies employ solutions such as data warehousing and specialist packages. This begs the question: are companies aligning their management information to their strategy?
The answer is: in a way. Generally speaking they are through KPIs but often external market information and predictive analysis is neglected or ignored entirely. Partly this is due to high quality information being irrelevant to the strategy where the scattered reporting function leads to pointless content or ill-timed data emanating from non-finance departments.
What makes finance different is CFOs and their departments have an ability to turn information into insight, and can fairly weight the importance of financial and non-financial information to the business. The correlation between top–performing companies and the accuracy, timeliness and relevance of their management information is clear.
It’s important management reporting incorporates external market information; includes predictive analysis; includes the business in giving more meaning and context to non-financial information; and that the reporting function overall is aligned with the strategy.
In the modern business, the vitality of management and board reporting making strategic decisions can seem like a paradoxical situation. High quality data is required to drive the decision making process but unless it is aligned to the business’ strategy it is almost worthless.
Chief Financial Officers (CFOs) and the finance department needs their management information to be dynamic, relevant, timely and aligned to the organisation’s strategy and a sound strategy that contributes to long-term success is one steeped in reality.
This is achieved by setting and influencing strategy through finance—particularly in the implementation stage—and informing the decisions that align with the strategy through the vital management information finance will produce. Finance needs to become a clearing house for all management information, not just financial, if they are to play their crucial role in supporting strategy planning and decision making.