Shoot the messenger

“Neil, that is not a f*cking strategy.”

Poor Neil. It wasn’t even his strategy. But, Robert, the new CEO, was looking for a messenger to shoot. And today, Neil (VP for Media & Communications) was that messenger. Oh, the irony!

I was also new as the CFO - I’d been brought in alongside Robert. We would go on to form a formidable good cop/bad cop routine. Alternating as the circumstances needed. But for now, we were getting to know each other.

I was about to say something to cool the room, but Robert hadn’t finished. His face had been getting progressively more crimson as he read the deck.

“It’s sh*t. Dog sh*t. While you’ve been pontificating about mission, purpose, and values, the competition is out there eating our lunch. Selling more, operating better. Delivering value for customers.”

He had a point.

This so-called corporate strategy was missing the crucial part... the strategy. 20 pages full of meaningless, bland sentiment statements of no real substance. They could have belonged to any corporation. It was useless. Wallpaper.

Once Robert calmed down (it took a while) he delivered the gold: “A good strategy MUST have two things: where you are going to win, and how you are going to win. Mission, purpose, and values are important too. But only as a means of getting to where and how you will win.”

Naturally, a full strategic review followed.

But it was unlike any other I’d seen.

Rather than starting at the top, it started in the guts of the business. We must have spent 50% of our time for 3 months in workshops, meeting middle management throughout the business. Mapping products, customers, markets, competitors, and capabilities.

Robert wanted to know EXACTLY where we had the greatest competitive advantage. And he was prepared to dive deep to find it. Business unit by business unit, finding the wedge. He was relentless.

By the end of the process we knew, in great detail, exactly where our biggest comparative advantages were. Defined in great detail. Whether it was a particular piece of IP, contract, brand, or production line. And why it was defendable.

Then he pushed each divisional president to rebuild their strategies around that wedge.

I learned a huge amount through that process about what it takes to set an effective strategy.

This is the first part of a 4-part series on strategy from the CFO seat.

More than a bean counter

I hear it all the time. Finance pros say they want a role where they can ‘be more strategic.’

Whenever I ask them what that means, they don’t really know.

80% of the time it's something early career finance pros say when they think they are above the monthly grind.

Or when you read on LinkedIn that finance should be a ‘strategic business partner.’ Followed by a bunch of interminable corporate waffle.

Senior finance leaders certainly DO need to be strategic. But what exactly does that mean?

In a new series for August, we are going to explore business strategy from the finance seat.

Strategy is one of the most comprehensively covered business topics. There is a ton of incredible material on the subject.

But our angle will be how finance fits into strategy setting. What the CFO’s role is in strategic decision-making is. And how we can link strategy to the finance function.

This will be a 4 part series:

• Part I (This Week): The CFO’s role in strategy

• Part II (Next Week): The most important strategic models

• Part III (August 17th): Strategic unit economics

• Part IV (August 24th): Linking strategy to the FP&A Cycle

But before we dive in, we should define strategy.

What is strategy?

This in itself is an area of debate.

Textbooks will commonly refer to strategy as: “A plan that helps a company achieve its goals and objectives by outlining the actions and decisions it plans to take.“

I prefer this: Strategy is choosing the specific things a business will spend its time and money on.

And it’s important those choices are ‘specific.’ The experience I shared in the opening anecdote showed that.

It also means being specific about the things you are not going to do. Focus is the most valuable weapon in a business. And focus is all about saying no to exciting things in pursuit of even more exciting things.

And if you don’t believe me about the importance of focus in strategy, then listen to these folk:

You should be equally specific about the CFO’s role is in strategy.

And CFOs have 7 roles to play in the role of business strategy:

1. A voice in the C-Suite

2. Modeling strategic options

3. Aligning finance to serve the strategy

4. Role-modeling and communicating the strategy

5. Connecting strategy to the FP&A cycle

6. Measuring the success of strategy (and its execution)

7. Funding the business plan

Let’s take each in turn:

1) A voice in the C-Suite

CEOs own the strategy. Not the CFO. Not the C-Suite collectively. Not the VP of Strategy.

The CEO.

They will live or die by its success.

Setting the strategy is the most important job in a business. Get it right, and it will unlock value like no other activity.

Get it wrong, and precious hours and dollars will be wasted on the wrong things.

Decisions on strategy are undelegatable. I’ve been involved in a few ‘democratic’ strategic processes. They were terrible.

But just because the CEO is the big dog on strategy, does not mean they are on their own.

They need the right voices around them to inform and influence the CEO with different viewpoints, informed by their unique lens. It’s important there is robust strategic debate among the C-Suite on strategy.

Naturally, the CFO is an important voice in that room. As are voices on sales, product, technology, people, etc.

The Board of Directors is responsible for approving the CEO’s chosen strategy (and monitoring the delivery). This creates an unusual dynamic for those CFOs who are also appointed to the board of directors. They will have the separate responsibility of approving the strategy as a voting board member. Needless to say, it’s a bad look if a strategy makes the boardroom that you, as CFO, can’t put your weight behind.

Don’t get caught offside.

A CFO has a voice on strategy. And they may even have a vote (in the boardroom), but they aren’t the ultimate owner of the strategy. That falls on the CEO.

2) Modeling strategic options

One area where the CFO is uniquely placed to influence the strategy is on the numbers themselves.

The business is here to deliver value for shareholders.

Value for shareholders means generation of long-term maintainable free cash flow per share.

A good strategic process will require umpteen ‘what if scenarios’ modeled.

These scenarios and their impact on all 3 financial statements should be calculated either inside finance, or using a framework and template controlled by finance.

You can think of the CFO as the financial modeler in chief.

But it’s not the model or output itself that is useful. It’s the modeling process. You will learn things about sensitivities, tensions and pain-points in the strategic plan that otherwise might have been missed.

Bad decisions get made when every department has its own way of making its idea look the best. By coordinating through a central methodology, finance is uniquely placed (normally through the FP&A function) to independently evaluate the impact of strategic options or decisions.

This is a great responsibility and must be done properly and impartially. So just because you think the VP of Sales is an over-optimistic irritating doofus, it doesn’t mean their ideas are bad.

While good businesses have calendarized strategic processes, some strategic decisions can’t wait. Which means being fleet-footed, and responsive to the business.

3) Aligning finance to serve the strategy

With an agreed strategy in place, each C-Suite leader must take responsibility to line up their department. The goal? Serve the business in delivering the strategy.

It’s a bit cliche, but a boat with everyone rowing in the same direction will always go furthest and fastest.

For the CFO that means ensuring finance, and any other functions they lead, are geared up to deliver the strategy.

For example, if your strategy is built on making decisions quickly based on forward looking information. You better have your finance function set up to deliver that.

Your function MUST match the tempo of the business.

Businesses, especially big businesses, are quick to turn disconnects between functions into toxic political battlegrounds. If that happens in your function, you as the leader have failed. Don’t let it happen.

Likewise, you can’t make it all about finance, either. Never forget, finance is a back (and sometimes middle) office function. We don’t make or sell anything. And must respect those who do.

Build a finance function that serves them.

4) Role-modeling and communicating the strategy

One of the things I struggled with when I took my first big CFO role, was the extent to which I was ‘on show.’ It was a large business with more than ten thousand employees. Several times a day, I’d been in an elevator with people who knew who I was. But I didn’t know them.

I quickly learned the hard way I had to ‘always be on.’

As a prominent leader of your business, every fiber of your existence needs to be consistent with the strategy. And the values it sets out.

You need to say the same things and repeat the same catchphrases, again and again. Until the message fully lands (which it never will).

Being a spokesperson for the business and its strategy is your responsibility, whether you like it or not.

If your business wants to lead on cost and be the leanest possible operator, you can’t be seen flying private.

You will need to be an ambassador of the business, its strategy, and what it stands for inside and outside.

It’s particularly powerful when a CFO is seen doing this. Businesses often expect CFOs to be hiding away in an office. So when you are seen front and center embracing the strategic plan, it speaks volumes.

If you find yourself in a business with a strategy you don’t want to put your name to, and you can’t convince the CEO to change it… you should go work somewhere else.

5) Connecting the strategy to the FP&A cycle

The FP&A cycle is the tool used to set the long-range plan. And then break it down into the annual budget, and ultimately measure against it.

That is how you create the golden thread of connecting long term financial goals to short term performance management. It’s the most important cycle for measuring performance in a business.

So getting an FP&A cycle that connects directly to the strategy is important.

Whenever I see a business that can’t convert its strategy into execution, there is oftentimes a major FP&A failure responsible.

This point is so important that we will dedicate the fourth and final installment of this series to it.

But as CFO it is your responsibility to make sure the strategic plan and FP&A cycle are two sides of the same coin.

6) Measuring delivery of the strategy

So we have a strategy. That’s the easy bit.

The hard bit is: ‘are we delivering it?’

This is where finance’s role as scorekeeper comes in. This is not a series on reporting, so I won’t go into further detail here. But the CFO does have a unique role here.

The CFO needs to have the insight, voice, and influence to flag one of two strategic failings:

1. The business is failing to deliver the strategy

2. The business is delivering the strategy, but it is not having the desired effect

That needs to be done boldly and relentlessly where needed. And it will be needed…

That also needs to be done in a specific way. Pointed and direct. Doing that without alienating your colleagues is hard. It’s not a point-scoring exercise. You are doing so to deliver a common goal. Just make sure it's delivered in that way.

This role is most challenging when you don’t agree with the CEO. I have, on more than one occasion, found myself in a position where the CEO and I did not agree whether the strategy was being delivered/working or not.

And I knew, in the boardroom, I would be asked what I thought. This meant a delicate balance between reporting accurately to the board, and undermining the CEO in front of the chair.

Not easy. I will have to save that full story for another day.

7) Funding the strategy

As a CFO, approving a strategy that is not affordable is embarrassing. It means you f*cked your numbers up.

Likewise, you’ll have egg on your face if you approve a strategy that requires funding, and you aren’t able to deliver it.

I came into a business once and had to cancel capex projects halfway through completion because the previous CFO had approved a project we literally didn’t have the $ to pay for (I told part of the story here).

It destroyed the credibility of finance, and rightly so. It’s on the CFO if you let the business get ‘over its skis’ in terms of strategic commitments it makes without funding.

That might mean being the ‘bad’ CFO or the ‘no’ CFO. But it’s better than being the ‘oops’ CFO. Finding this balance and solving funding problems will be a big part of your legacy.

So … those are the seven roles the CFO plays in strategy.

Next time you hear someone talk about finance ‘being more strategic’ push them on what they mean. Please.

‘Strategic’ often gets used as a way to be less detailed, rather than more deliberate. It’s a red flag if the term ‘strategic’ is being used to move away from something, rather than towards something.

Next week, we will go over some of the strategy models you must know as CFO. Let’s find out how hard you were listening in business school!

Rhamey from Atlanta, GA asked:

How did you balance getting a CFO job at a smaller company (eg $500M) vs staying longer in a VP of Finance role at a larger company?

Thanks, Rhamey. This is a great question. It’s one that many growing finance leaders face, and one I faced earlier in my career.

As a general rule, I’m a fan of getting experience as a fully accountable CFO as soon as you can in your career. Even in smaller businesses. There is no substitute for being the number 1 in finance. Responsible for keeping the business funded and investors happy. Without the safety net of a mothership to bail you out if it goes wrong.

And in your case, $500m is not a small business. It might be smaller than you are used to, but $500m companies are still big, complex animals. So you wouldn’t be moving too far.

Ultimately, the question for you at this stage of your career is not just how you get to CFO, but what sort of CFO you want to be. You need to put yourself in a category of 1. I talked about this concept here.

Specialize as a CFO in a particular sector, company size, ownership model, situation, and geography. And you can become one of a small number of finance leaders who do exactly what you do.

Then ask yourself, which role gets you closer to that specialism?

Good luck, Rhamey.

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And Finally

Next week we’ll get into the most important strategic models.

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Stay crispy,

The Secret CFO

Disclaimer: I am not your accountant, investment advisor, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. And certainly is not investment advice. Running the finances for a company is serious business, and you should take the proper advice you need.