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Guest Column: FDs and the process of strategic management

Medium

I took exception to the editor’s letter in the October issue of Financial Director to the point where I had my very own ‘Dear Sir, am I alone in thinking…’ moment. “On my first day working on this magazine, back in January 2008, not only was the world a very different place, but the concept of the finance director was too,” wrote the editor.

“FDs, I was told, are dry; they love numbers, obviously; they sit in a darkened office and count the money. They do not, I was informed, come out of that office very much and they don’t really know what business does outside of a spreadsheet.”

What got my goat in reading this was that such a line has been trotted out so many times before. The wisdom of it is that FDs, up to this point, have been beancounters – but all of this is about to change and we, as a group, need to embrace these new-fangled skills of strategy.

To my mind, this has never been the case. Finance directors have always been at the heart of strategy-setting and evaluation. We are the glue that holds the whole process together. We provide structure, clarity and discipline to the process of strategic management. We are the team member who should speak up when the emperor has no clothes: we should also be the one who keeps the fads, strategic management tools and consultants at bay and keeps everyone else’s feet on the ground.

There is no end to these, be they pointless ‘mother’s apple pie’ mission statements, death by re-engineering, customer dissatisfaction, core (in)competencies or total quality mayhem. Take your pick – and it seems as though every chief executive has to have a preferred guru to quote and a favoured management fad: that is, of course, why you should never let a CEO buy books in an airport.

How many of us have had the benefit of a CEO that has developed a broad and inscrutable strategic vision that they insist on communicating to inventors, whether private or public equity? The investors listen patiently, but are itching to get to the FD to explain what all this means and what it is going to do to the cashflow and the value of the business. The same vision is likely to also be rolled out to business managers who ask themselves, ‘what does this mean? What am I expected to do? What decisions should I favour? What investments should we be making and how will they be assessed and evaluated?’ It is our job to make sure this process of communication happens and that the line of business strategy is bolted down sufficiently to answer the question of whether we succeeded or failed, as well as what the reasons for that success or failure were.

So, what does this mean in my job as an FD? We are the largest UK operator in our space – for what it is worth – in a very fragmented market. Our medium-term strategy is largely determined by availability of capital (when we have an active investor, we grow) and government policy. On a shorter time scale, there is not much that can be done about either of these, so we need to frame and reframe a business strategy to take advantage of these opportunities – or reduce the impact of these threats, depending on the mindset of investors and government at any particular moment.

What really matters is that we are able to generate a plan that identifies what we need to do in the context of our investors’ appetite and government policy. This is joined with a set of identifiable actions that our business managers understand and agree. We are very keen on “Smart” objectives – a well-used approach to project management around the principles of setting out Specific, Measurable, Attainable, Relevant goals which are then evaluated and re-evaluated: not because we like acronyms, but because we want to make sure we all know what has been agreed. Once in place, it is relatively straightforward to measure progress, something we have chosen to do quarterly, and communicate it throughout our management group.

Apart from participating in the progress of the plan, my job is to keep it simple and comprehensible, ensuring we have a logical sequence of strategic objectives, activities to promote that objective and plausible measures that should indicate success. It is also my job, as you’d expect, to get people to think about the likely financial impact of activities, both in terms of resources required and a likely range of outputs that may be achieved.

So as you can see, the FD’s role in this context is about bringing rigour and logic to the process, then following up with measurement and interpretation skills as the strategy is implemented. It is also about making sure that investment criteria, evaluation and approval sits within this agreed framework.

Oh, and in case you’re wondering. Yes, I do have a spreadsheet to add all this lot up.

Simon Irons is chief financial officer at Busy Bees Holdings, which operates nurseries throughout the UK

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