Key concerns for CFOs

Strategy execution presents a significant challenge for business. So we brought together CFOs from a range of industries and different sized organisations at Chartered Accountants’ Hall to provide some insights on the topic.

The group agreed there were a number of underlying challenges to maintaining a robust strategy in the face of continuous change, with particular areas of importance highlighted as follows:

• changes in regulation, competition and technology;
• dealing with oversupply when new competitors abound – they undercut you then do not deliver;
• ensuring people understand the strategy, are motivated by it and can connect what they do to it;
• keeping the organisation focused and targeting resources appropriately, particularly when there is so much an organisation could be doing;
• changing the culture to align with a new strategy, particularly when the current culture has delivered success; and
• accessing the necessary skills and resources.

The discussion prompted a number of ideas around ways to solve these issues.

Executing strategy requires honest conversations throughout the organisation. Conversations about strategy, objectives, performance, how well customer needs are being met and so on. Don’t expect these conversations to come naturally at first. You have to consciously devote time to it. Team-building activities, including for the executive team, can help. One CFO was taking the lead by organising away days and sometimes inviting athletes and coaches to share their ideas – bearing in mind that not everything in sport applies in business.

Good structures and frameworks that ensure the management team regularly discuss how strategy execution is progressing are important. This includes management information that highlights performance against genuine key performance indicators (KPIs) that connect to the strategy.

Such tools are at their best when used as a prompts for high quality, honest conversations.

However, attendees were wary of ‘paralysis by analysis’, the expectation that answers would magically arise from crunching data and believing because a computer was involved it must be right. Analysis needs to be sense checked to confirm the underlying logic and assumptions. If required, new information systems provide a useful focal point for getting people to use information more consistently and reduce endless conversations about whose numbers are right.

Getting buy-in into the strategy is essential and requires high-quality communication. This does not mean bombarding people with endless streams of emails. Rather the need is to engage with people, listen to them and sell the strategy. A good sign that this has been successful is if people can clearly communicate the strategy to others. The well-known anecdote of president Kennedy visiting the Nasa space centre, asking a janitor what he was doing and getting the response “I am helping to put a man on the moon” is always worth remembering.

Successful strategy implementation requires settling on the right number of objectives for the circumstances. For example, an effective management team, supported by efficient processes, can handle more objectives than a less mature management team in turmoil. You also need a way to motivate people who are working on so many important things that they may not find it easy to connect to the strategy. This may result from the difficulty in measuring how operational activities aggregate up to higher-level organisational goals.

To deal with this, one organisation had three strategic goals and a bucket called ‘commercial contribution’. With high-quality discussions on progress, people began to realise that work they had classified as commercial contribution could often be connected to the three strategic objectives. Unnecessary objectives began to be dropped. Over time, focus is achieved without demotivating those who were struggling to connect with the strategy. An alternative proposed was to widen out the number of objectives to be more inclusive.

We have been highlighting the risks of seeking out best practices since our report, The finance function: a framework for analysis. Pre-packaged solutions, often sold by consultants, are unlikely to work as every organisation’s culture is different and each set of circumstances is unique. Organisations do not gain competitive advantage by benchmarking against others and trying to copy them. Yes, learn from others and look at different practices, but you have to find what works for you.

Sometimes it’s obvious when a strategy is off-track, sometimes it’s not. Well thought through operational measures and milestones that connect to strategic goals and KPIs will help. Of course, in the event of unexpected cash flow and profitability declines, action needs to be taken – but by that time it may be too late.

Three examples of getting things back on track were discussed:

• In a turnaround, the new CFO said in town hall meeting: “What a mess, what a team, what an opportunity!” The team became more energised, they focused on what was going well and crowded out what wasn’t working. The leadership idea that “my job is to define reality and give hope” was also helpful.
• An organisation burning cash by offering a high-quality service based on physical locations was not connecting with consumers. It was then presented with a partnership opportunity. They were quick to realise this provided a much stronger business model with higher quality revenues. Iteratively they pivoted from providing an operational service to providing a software platform. It should be noted that this was in the context of a relatively small organisation with a focussed management team. Replicating this in larger organisations is difficult.
• One CFO highlighted the need to be cautious about jumping on the latest bandwagon, building a team and waiting for the revenues to flow in. Careful thought and financial modelling are required before deciding, albeit carried out quickly enough to avoid missing an opportunity. Organisations that have previously made successful bets based on gut feel tend to forget the bets that did not come off.

With Brexit and educational shortcomings in the UK, finding the right people with the right skills is difficult. At the macro level this can only be solved through effective government policies. However, executives can do their part by protecting the training budget. One CEO at our meeting, working for a European-owned company, was under pressure to deliver cost savings. When he suggested to his UK board he was going to tell investors the training budget was sacrosanct they said, “good luck with that!”. However, when he made his case the investors came on board – they realised training was key to the future of the company.

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