The responsibilities of today's CFOs, Finance VPs, Controllers, and Treasurers extend far beyond managing and accounting for business transactions. Increasingly, financial managers are being challenged to create and sustain enterprise value by conceiving, planning, and successfully executing strategic business initiatives. Meeting the emerging challenges of financial management will require most financial managers to aggressively expand their knowledge, skills, abilities, and tools.
This series has introduced several actionable strategies for meeting the present and future challenges of financial management. In this concluding article, we'll review five key strategies that financial managers will increasingly need to implement in order to remain professionally relevant -- and employed.
1. Rid Yourself of "Black Box" Thinking
Financial managers have traditionally thought of the enterprise as a "black box" through which cash flows. Many view their job primarily in terms of reporting what flows into and out of the box while distancing themselves from what happens within the box.
But financial performance is driven by what goes on inside the box. Specifically, quantitative differences in financial performance are increasingly being driven by qualitative differences in non-financial resources and in how those resources are utilized. A more enlightened view of financial management involves looking inside the box at each stage of the operating cycle to understand what causes cash to flow in or out, and proactively managing the decisions and activities that generate both cost and value.
Financial managers are in a unique position to ensure that sound decisions about operations are made. They can do so by understanding and communicating the magnitude and timing of costs and value based on the activities implied by alternative managerial decisions. Modern methodologies such as Activity-Based Modeling can help financial managers deal with cost and value behavior in newer, more complex operating cycles.
2. Connect with Your Customers Better Than Your Competitors Do
Managing the value and costs associated with an enterprise's marketing, sales, and distribution functions has become at least as critical as managing the value and costs of producing goods and services. In order to develop and sustain competitive advantage, many enterprises must now connect with their customers at the lowest cost or in a highly-differentiated way compared to their competitors. Again, Activity-Based Modeling provides a consistent framework for financial managers to deal with both manufacturing and non-manufacturing functions.
3. Innovate At the Category Level
Many firms are experiencing a shift from brand-level competition to category-level competition, which is inherently more intense. Consequently, one of the greatest risks that financial managers find themselves dealing with is the risk of over-investing in the value chains of dying product/service categories. Ideally, you want to have new value chains to replace old ones that obsolesce BEFORE the old ones obsolesce.
Managing this risk of category obsolescence requires the firm to continuously re-win its customers through leadership in business models and experiential elements before other potential category-level competitors do. Investing in "better" products or cutting prices won't ensure the survival of the enterprise.
4. Engage the Best Talent You Can Afford
The only way your enterprise will be able to compete in a world of increasingly globalized markets is to engage the best talent you can afford from the largest labor pool you can access. When it comes to talent, quantity is no substitute for quality.
Financial managers can contribute to the success of their enterprises by understanding and responding to the evolving relationship between talent and opportunity. Ultimately, accepting the need for top talent and exploiting it through competitive marketing, sales, and distribution are the keys to successful financial performance in the coming decades. Sharing actionable information with workers and avoiding micro-management are also keys to success in managing top talent.
5. Recognize That Stakeholder Relationships Are Not Permanent Entitlements
In a world of globalized markets, you can't take customers, employees, suppliers, or creditors for granted. You must continuously deliver competitive value to all of the enterprise's stakeholders, not just owners. Alternatively, you must identify the stakeholders to whom you can deliver competitive value if you cannot do so for your current stakeholders.
Conclusion
Despite the many emerging challenges of financial management, it will still be possible for today's financial managers to survive and prosper by embracing new knowledge, skills, abilities, and tools. Instead of simply measuring profit or reducing costs, financial managers will ensure their future by identifying and exploiting profitable opportunities. In short, financial managers need to stop acting like "overhead" and start acting like "profit." The actionable strategies addressed in this series represent powerful ways for you to step confidently into a challenging future.
Read the previous article in this series:
Part 8/ Implications of the evolving relationship between talent and opportunity.
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