The agreement between over half of executives is that the best way for leadership to ensure company success is to invest more time on strategy. CFOs are on the front-line of making more strategic decisions, and those who value basing decisions on data and analysis, tend to lean more on overall strategic planning for the company – and, doing so successfully.
But, as leadership works on mapping out these strategies, they often face challenges from those who come from more of a traditional perspective, like chief strategy officers (CSOs).
When these two sides of leadership hold explicit conversations about expectations on company’s capital allocation and strategic priorities, the two can work together and have more information on how to balance and achieve long-term growth.
Reconciling capital allocation to strategic priorities
It has been found that companies allocate ninety percent or more of their resources to the same projects and activities every year – regardless of changes in the marketplace or internal changes in company workflows.
When CSOs and CFOs bring insights to creating a better link between resource allocate and strategy, they can create portfolio-strategy processes that encourage more frequent, concrete conversations, that is held on an ongoing basis as opposed to the usual once-a-year, or every 3-5 year plan to sit down and discuss.
While CSOs pay attention to the way strategic decisions are made (by managing decision-makers and encouraging debate on different options), it’s possible to use data to set the discussions on course. To guide the discussion on strategy, there needs to be a conversion about the resources needed to fund it, reminding the executive team on the rationale for making changes based on real numbers, hard data, and metrics.
Looking for insights on growth beyond the company
There is agreement among CFOs that organizations need to up their game when it comes to growth-related processes. Recent McKinsey research shows that more than 60% of growth comes from doing business in markets that are growing well, and where companies experience a competitive advantage. In order to achieve this level, a long-term strategy must be in place.
Establishing a long-term strategy
Short-term investors are making it a challenge to balance a company’s long-term growth strategy with immediate objectives. Yet, when CSOs and CFOs work together, they have a key understanding of regulations, innovations, and industry trends that complement each other. Things like capital allocation and issues relating to stakeholders become topics of discussion. Together, they are able to put forth an option that improves a company’s short-term earning and its longer-term growth in a way that makes sense to the company as a whole.
The process of facilitating collaboration means explicitly voicing strategy and finance challenges. Formal structures work to start the budgeting process, and, that makes it possible for both sides to see how resources align with short- and long-term strategies.
Beating the Odds with Capital Investment
Using CapEx to support long-term growth is a central component of a successful business strategy as its purpose is to fuel growth. This means that crafting a strategy like a business plan will invariably anticipate greater returns on the invested capital.
However, greater capital expenditures do not lead to better returns when they aren’t thoroughly analysed prior to making a collective decision that will avoid risk and failure.
By working together, both CFOs and CSO can complement each other’s perspectives, and help leadership, the board, and other members of the executive team face the challenges that come with achieving growth based on large investment projects.
With the multitude of options that may come your way to invest in, you have to consider working on a structured portfolio that optimizes your investment. This way, you can work to pinpoint the largest value with every invested dollar. Having a long-term strategy can get you there.