What’s your top priority as a CFO this year?
According to PwC, 47% of finance leaders say “building predictive models and scenario analysis capabilities” is at the top of their list. In fact, PwC thinks this theme is important enough to be the top statistic featured in their “What’s Important to CFOs in 2023” research report.
Predictive analysis and scenario modeling sounds as complicated as it is impactful, but what if I told you that there’s an emerging business function tasked with just that responsibility?
If you hadn’t guessed from the title, I’m talking about strategic finance: the movement that’s here to change the way the finance team of every tech company does business.
Strategic finance isn’t just the new kid on the block. It’s the evolution of your Financial Planning and Analysis (FP&A) crew, the department that can help every team in your company make better decisions. It’s the next stage for the business unit that transforms every bit of data you collect into higher profits and lower costs.
So let’s get down to what this high-yield, high-disruption part of the CFO’s office is all about.
The Role Of Strategic Finance In Modern Tech Companies
Strategic finance is the data-driven function within a finance department that is primarily concerned with leveraging advanced tools and centralized data into insightful business strategy and optimized decision-making across multiple time scales.
In plain English, this means it’s a tech-enabled team that helps everyone in the company achieve their goals more effectively by paying attention to the big picture.
By adding analytical firepower to important business decisions and helping organizations optimize for both short-term and long-term objectives, strategic finance is becoming crucial for tech finance managers—as well as one of the most exciting parts of corporate development in general.
Strategic finance shares some similarities with the FP&A function of a traditional finance team. However, while FP&A focuses on using existing data to analyze why things already happened and tactical decisions that can be made from there, strategic finance helps companies understand how to achieve certain outcomes in the present and the far future.
Strategic finance tends to utilize advanced tools to unify data and provide real-time insights, not just static Excel models and budgets. It’s part of a new perspective on finance that focuses on the CFO’s office as an active participant in business success, an advisor for the entire C-suite, and a true value creator; rather than being a backward-looking cataloguer of past wins and losses.
Strategic finance is ushering in a new era; the era of bean-counting 2.0.
Core Components Of Strategic Finance
There are a handful of central functions under the strategic finance umbrella. Let’s look at each of them:
Most directly, strategic finance offers companies an internal advisor for best practices and planning throughout the organization.
Need to decide on a crucial price point, feature set, or expansion opportunity? Strategic finance has your back.
It is also responsible for taking all that financial data your company collects every day and translating it into unified, cohesive models, plans, and budgets. Strategic finance effectively translates hunches into evidence, helping other operators make better plans and budgets when their perspective might not be enough alone.
Budgeting, Planning, and Forecasting
Whether you’re creating plans for today, tomorrow, or ten years from now, strategic finance helps make sure you have the right resources in the right places to achieve your growth goals.
Moreover, they take a critical look at the tools that are already being used and determine if they’re actually necessary for getting the job done. Where many may be stuck in their current paradigm, strategic finance’s job is to re-evaluate the way things are done constantly.
Depending on your organizational structure (and the size of your accounting team), strategic finance will likely be responsible for financial reporting. At the very least, they’ll be the ones ensuring that financial reports make their way into your unified database of financial information.
Finally, strategic finance takes on the task of performing risk management across your entire business. This could be financial modeling for different market conditions, estimating the costs of a new venture—with success and failure scenarios—or stress testing different subscriber churn rates in the context of your long-term goals.
Getting Dejá Vu?
If you’re sitting here thinking “Yeah, my finance department does all of this anyway”, you wouldn’t be alone. Strategic finance is as much a movement as it is a function; while these activities are already being performed by most modern finance departments, the entire industry hasn’t caught up.
The reason for the excitement is the industry-wide reframing of the financial team. More and more often, the CFO and, by extension, the finance team is becoming an active, vital participant in business decisions. By ensuring you’re operating as a strategic finance leader, you’re going to be securing your seat at the table for a long time to come.
The Interplay Between Financial Strategy And Decision-Making
Strategic finance works closely with decision-makers throughout your entire company. Whether it’s working closely with company leaders or functional managers responsible for marketing or engineering, the common language is data.
Tech businesses thrive on data analysis and the strategic finance team might just be the clearest use case for how important data really is. The strategic finance emphasis on real-time data is a fundamental differentiator from traditional finance functions.
Here’s an example. In my industry of commercial real estate, properties can take months to close after a price is agreed on. This is a major challenge since markets end up using data from decisions made months prior. That kind of delay reduces the ability of leaders to tie their financial decisions to what’s happening today—just like the stars you see in the night sky are really images of those celestial bodies from many years ago.
Real-time data overcomes this issue. By using the freshest, constantly updated information, teams can be confident that they are using real, accurate information in their financial analyses; not the ghosts of decisions made long ago.
Strategic finance tracks a wide range of KPIs. Alongside traditional financial metrics - like revenue, gross revenue retention, cash flow, and profit - strategic finance professionals keep an eye on an expanded universe of data points as diverse as employee productivity and customer satisfaction. Since strategic finance aims to support every other unit in your business, it will frequently adopt the KPIs of the teams it’s helping.
Optimizing ad spend? Identifying factors leading to customer churn? These metrics belong on the list, too. In this way, strategic finance teams use data to support better decisions across the entire company.
Bridging the Gap: Finance Team And Stakeholders
By supporting every function in your firm with valuable business intelligence, strategic finance is exposed to numerous stakeholders. Consequently, setting the right expectations ahead of time is crucial to maximizing the return on investment of your strategic finance initiative.
Part of the challenge is that CFOs of growing tech firms are often in the challenging position of leading an established FP&A team while implementing a strategic finance function. In growing companies, finance employees often wear both hats at once.
The issue here lies in fulfilling the duties of an FP&A leader while also cultivating capability on the strategic finance side. This means different tools, different focus areas, and different metrics, all of which need to be managed while fulfilling your existing FP&A responsibilities. Plenty of teams are doing this, but don’t go in with your eyes closed. Before you begin, have clear answers to questions like how to divide your team’s time, which software they need to be trained on, and how you’ll keep them focused on the now (FP&A) as well as the future (strategic finance).
Communication with the stakeholders on your team starts with the true basics: What will your strategic finance effort change, and how does it impact the balance sheet? That’s just the beginning, though.
Address your stakeholders on their terms, with frank discussions of their roadblocks, automation wish lists, and bottlenecks. Framing strategic finance in terms of what it offers to your entire organization is a great way to build buy-in ahead of time.
Tools And Automation: Beyond Spreadsheets
One of the fundamental characteristics of strategic finance is its greater emphasis on modern tools than the old standby (yeah, I’m looking at you, Excel).
A simple spreadsheet is, of course, a powerful weapon in your arsenal, but the static, manual operation of Excel leaves a lot to be desired when it comes to real-time data and forward-looking analytics. So what’s in the new wave of strategic finance tools?
Strategic finance platforms like Mosaic and Basis offer a range of features that spreadsheets cannot provide. Basis, for instance, breaks its products down into Performance Analytics and Forecasting & Strategic Planning; the former focuses on unifying and displaying data from multiple sources in custom dashboards, while the latter emphasizes models, templates, and scenario planning across the entire organization.
Providing these resources and toolkits to your entire company, via a single source of truth, instead of Company Marketing_Budget_V3_Final(2).xlsx, is worth its weight in gold.
These tools also unlock new automations for the companies that use them. Automation in Excel requires programming macros or writing Visual Basic, but purpose-built strategic finance tools make it easy to automate tasks like reporting and data sharing.
This gives these tools a huge amount of utility for teams that may not be nose-down in Excel all day long (aka, the teams your strategic finance department is supposed to support).
Future Of Strategic Finance: What's Next For CFOs?
Strategic finance is already demonstrating a hard-to-miss impact on established but growing tech companies. According to a Gartner survey, 64% of CFOs said that autonomous finance will become a real thing in the next six years. Autonomous finance—where advanced technologies like AI are used to automatically handle everything from invoice management to decision-making—is at its core a strategic finance implementation.
Plus, risk mitigation is also an increasingly critical focus in the turbulent years since COVID-19. In fact, Deloitte research puts the number of CFOs who say this is a good year to take risks at a mere 33%, down from a two-year average of 43%. If, like those CFOs, you dream of risk mitigation strategies, keep in mind that the real-time emphasis of strategic finance makes it indispensable for actually reducing risk across your organization. Volatile times make for excellent strategic finance testing grounds.
What if I told you that Gartner also identified that 80% of finance teams currently using AI only adopted the tool within the last two years?
Times are changing fast; your job is to adapt alongside them.
Embracing Strategic Financial Management
Strategic finance is a crucial component of any modern tech business seeking to make better strategic decisions and ultimately, more money. It transforms the finance team from an observer to a participant, giving insight, guidance, and recommendations, powered by a unified data platform.
The tech world is not static, and “snapshot in time” data can be outdated (and even misleading). Strategic finance provides an effective solution to this by leveraging real-time data collection. If your goal is to grow your business, strategic finance is the partner to rely on.
One word of warning: many of the publicly accessible guides to strategic finance out there are provided by tech platforms. They aren’t inherently untrustworthy, but be sure to check for bias and review multiple resources when expanding your strategic finance knowledge.
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