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The CFO’s New Role in Strategic Planning

The annual strategic planning process has been invalidated, but devising a coherent strategy is more important than ever. CFOs must play a much bigger role than the one traditionally given to the head of finance

The turmoil of the past 18 months has led CFOs to refocus on their firms’ strategic plans and become reacquainted with the strategic planning process. In fact, in a recent poll of our CFO network, three of the top five challenges mentioned by CFOs most frequently were :
- Creating a dynamic strategic planning process
- Incorporating market sensing into strategic plans
- Linking reviews of business unit employees to forward-looking goals

We rarely see agreement like this across a poll, especially about something that hasn’t traditionally been a core capability for the group being surveyed. From speaking with CFOs and their teams, two potential reasons emerge to explain this trend :

1) The recession has caused all firms to spend a larger portion of their time focusing on the financial causes and consequences of corporate strategy. CEOs have increasingly called on finance professionals to initiate and validate strategy instead of business unit heads or other operational senior executives.

2) The annual strategic planning process is broken. As we’ve said before, there’s now no way that an annual decision-making jamboree will be sufficient to guide every high-level decision that managers have to make for the next eight to twelve months. A volatile business environment coupled with long-term bets that are made in unfamiliar markets means that managers have to make no/go decisions about M&A, new product launches, discontinuing old products, divestitures, and so on outside of the planning process.

As one CFO of a global financial services company told us :
“The outcome of our strategic planning process is a 300-page document that sits on the shelf.“
CFOs (in line with most senior executives) still need a coherent strategic plan, but they want to create it without a cumbersome annual cycle. This two-part blog post will look at the role we’re seeing CFOs play in setting strategy (in part one) and then some of the tasks they’ve taken on to improve strategic decision-making (in part two).

The CFO’s New Role in Strategic Planning

Too Much Plan, Not Enough Strategy
This slide sums up where CFOs and their teams have traditionally focused during a strategic planning cycle and where the best CFOs are now persuading colleagues they should be applying their skills.

The base of the pyramid shows the more traditional activities that CFOs take in the strategic planning process. They focus on validating the financial arguments in the plan and act as the execution expert once the plan is set. In this role, the CFO sets targets, signs off on (or bottlenecks) resource distribution decisions, and identifies performance shortfalls.

The CFO’s emerging role is shown at the top of the pyramid. As strategic planning becomes a less effective way of making strategic decisions, CFOs must consider themselves more than just the finance expert in the room. CFOs should use their unique perspective to act as the voice of the investor in strategy conversations, as well as apply their expertise in assessing different business models, and use their ability to weigh the competitive advantage that a particular strategic option might confer.

What the Best CFOs are Doing
One CFO who carried out this role for quite a while (before continuing her upward ascent) is Sara Matthew, now CEO of Dun & Bradstreet. While she was CFO, she put together a one-page overview (available to CFO Executive Board clients) of how a CFO can play a larger strategic role. It shows the input she added to each stage of a strategy discussion, ensuring decisions focused on the long-term (total shareholder return for example), as well as allocating resources to the right projects. This is one of the most well-defined approaches we’ve seen a CFO bring to her role in strategy.

Coming Soon: Check back for part two when we’ll look in more depth at what CFOs should do to improve strategic decision-making at their firm.
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Posted by Vince Griffin
Research Director

Mercredi 9 Juin 2010

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