Do you think it’s the chief financial officer (CFO) or the chief strategy officer (CSO) who is the best at strategy? McKinsey & Company asked its readers that question in an article examining the best approach to strategy execution or delivery. The answer surprisingly was neither; it’s collaboration, they work best as a team.
Thirty years ago, strategy was considered the responsibility of the CEO. Since then, as the composition of top executive teams have changed, the job of leading strategy development has been shared by many members of the executive suite. While the 1990s saw the rise of the strategic CFO, more recently, many companies have created a chief strategy officer (CSO) position.
While developing, a good strategy is a management challenge that involves maximising the unique contributions of very different executives, at its worst it can require managing counterproductive tension and turf wars between CFOs, CSOs and business-unit heads.
However, such friction is destructive, McKinsey says, “mainly because it is a missed opportunity. It says the CFO and the strategy head are far more effective when they collaborate and identifies three areas where cultivating this partnership can have major impact on performance”.
Ensuring that strategy has money behind it
Companies tend to be timid capital re-allocators. On average, they put 90 per cent or more of their resources toward the same activities year after year, even though shifting resources as the business environment and company strategies change tends to deliver better, less volatile returns — particularly during down times.
Working together, finance and strategy executives can forge better links between resource allocation and strategic goals. This means, among other things:
- Creating a distinct corporate or portfolio-strategy process, rather than just combining business-unit plans.
- Encouraging regular conversations among small groups of senior leaders rather than reserving those for annual (or less frequent) encounters around big tables.
- Ensuring that strategy, budgeting, and capital allocation are fully integrated – a view you can only get if finance and strategy executives collaborate.
In the end, working together as a team, strategy executives can forge better links between resource allocation and strategic goals.
Tapping the most promising growth spots
The McKinsey research found that fewer than 15 per cent of executives consider such macroeconomic trends in making strategy decisions, and less than a quarter even look at their own financial projections and portfolio performance.
This is a big oversight, and strategy heads, working with finance chiefs, can help correct it. CSOs are usually in charge of their organisations’ trend forecasting, which can point to growth opportunities and looming disruptions. Similarly, they’re often the go-to individuals on competitor analysis. These insights are more powerful when combined with the CFO’s traditional strengths in managing the portfolio and the M&A strategy.
Embracing the long-term view
A strategist’s deep knowledge of regulation, innovation and trends complements a finance expert’s understanding of cost and revenue, capital allocation, and stakeholder issues. Together, they can propose options that improve the short-term earnings and the longer-term prospects in a way that is compelling to management, boards and investors.
Henri Eliot is CEO of Board Dynamics.
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