I’ve found that many finance leaders feel they aren’t sufficiently involved in strategy. Most want a more significant role in that area, but how do you achieve that? This week’s newsletter looks at the four levels of involvement a finance leader and their team might have in the strategy process. Your challenge is determining which level you mainly operate at and considering what you might do to work at the next level.

You may have some element of each level in your role, but you will probably work mostly at one. How do you increase what you do at the next level?

The four levels of involvement

There are four levels of involvement that you can have in strategy.

Level 1: Informing strategy

Most CFOs and their finance teams will provide analysis that supports the strategy. Your financial skills will be needed to provide data and build economic models that support the process.

Level 2: Challenging strategy

Beyond supplying analysis, you should have a crucial role in challenging strategy. Your finance skills make you best placed to review the risk of various strategic alternatives and view which options provide the best value for money.

You will need a good understanding of customer and product profitability and should form views on which customers and products should be pursued versus which should be dropped. You can act as a critical advisor to the rest of the leadership team by providing your unique financial viewpoint.

Level 3: Architect of strategy

You aren’t simply the finance expert but a business leader with a finance background. You are well-placed to be a key team member who designs the strategy with at least an equal seat at the table. Your role as co-pilot to the CEO should mean you are actively involved in deciding the future direction of the business.

You have an essential leadership role in communicating the strategy and ensuring everyone understands it. This means you’ll need to make sure the design is clear and adequately documented in sufficient detail. Beyond this, you need to lead the process that converts the strategic plan into budgets and targets and hold the organisation to account.

Level 4: Business transformation champion

In many organisations, there is a big gap between the design of the strategy and its execution. It would be best if you aimed to play a vital role in its implementation. You are a catalyst of change. This means taking the strategic plan and communicating it internally and externally, achieving buy-in, and driving the initiatives that will produce results.

A true strategist CFO will be working at this level.

The CFO as Strategy Informer

The CFO and the finance team are critical in providing information and analysis that supports the company’s strategy development and implementation. By helping key business leaders quantitatively analyse the financial implications of different strategy choices, the finance team provides valuable support that can help ensure the success of the company’s strategic initiatives. Additionally, by monitoring actual results and comparing them to the plan, the finance team can provide valuable insights to help course-correct as necessary.

The Strategist CFO needs to become more than just the informer and move on to become the strategic architect and the catalyst for change that executes the strategy. Information is a crucial building block in strategy design and execution. Your first responsibility as CFO is ensuring the strategy team has access to the correct information. The FP&A skillset is one of the critical things you will need in your finance team.

There are three straightforward things you need to address before going further:

• That the appropriate FP&A skills are present in your finance team to support both you and the rest of the strategy team
• Analysts have access to the necessary data to base strategic analysis and reporting.
• The focus of FP&A is 80% on analysing information for strategic planning and execution and 20% on managing the issues around the day-to-day management of data systems and data collection. Many FP&A teams have this as their ambition, but research has shown that the 80/20 is, in reality, focused the other way around.

The finance team supports you and the company’s strategy development and implementation processes. By providing quantitative analysis and insightful comparisons, they can help key business leaders make informed decisions that can help ensure the success of the company’s strategic initiatives.

The CFO, as a Strategy Critic

The role of the CFO and finance organisation in strategy has traditionally been to support and challenge the assumptions underlying the design. This includes questioning whether the expected returns are achievable given the level of risk involved and whether there are other ways to achieve the same objectives with less risk.

As a critic or challenger of strategy, the CFO and finance team add value to the strategy process by critically examining the risks and expected returns on different strategy alternatives. CFOs should also be active in helping to develop and communicate a clear and attractive investment story to the capital markets.

With these responsibilities, CFOs are uniquely positioned to help companies make intelligent decisions about where to allocate resources and how to balance short-term results with long-term shareholder value creation. CFOs can use their influence to help set the right tone at the top and ensure that strategy is not just about numbers on a page but rather a living, breathing document that guides all aspects of the business.

The CFO’s role as the challenger of strategy is essential, but it is only part of the overall picture. To be truly effective, CFOs must also be able to build relationships and trust with their colleagues across the C-suite. Only then can they hope to influence strategy in a meaningful way.

In recent years, however, there has been a shift in thinking about the role of CFOs in strategy. Several factors have contributed to this shift.

• First, the strategy process has become more formalised and quantified, focusing more on analysing data and using analytics to drive decision-making.
• Second, the role of finance in strategy has been elevated due to the Sarbanes-Oxley Act and other corporate governance initiatives that have placed greater emphasis on financial oversight and control.
• Third, the global economic environment has become increasingly complex and uncertain, which has made it more challenging to develop and implement effective strategies.

In this new environment, CFOs and finance organisations play a more active role in strategy formulation. They are working closely with CEOs and other members of the senior management team to challenge assumptions, identify risks, and generate creative solutions. This results in a more collaborative approach to strategy development that can better navigate the challenges of the current business environment.

So, what does this mean for the CFO?

• First, they must be more involved in the strategy process and sit at the table when making decisions.
• Second, it means that they need to be more than just a critic of strategy; they need to be a challenger constantly looking for ways to improve the strategy.
• And third, it means that they need to be comfortable with uncertainty and risk; strategy is all about making choices in an uncertain world.

The CFO as Strategy Architect

The role of CFOs in strategy has changed dramatically in recent years. They are no longer just numbers crunchers or bean counters; they are now playing a more active role in strategy formulation. Several factors have driven this shift, including the increasing formalisation and quantification of the strategy process, the elevation of finance in strategy due to corporate governance initiatives, and the complexity and uncertainty of the global economic environment. As a result, CFOs need to be more than just critics of strategy; they need to be architects at the heart of designing the system.

The CFO’s role in strategy formulation is critical for several reasons.

• First, CFOs understand the financial and operational implications of different strategic choices. This knowledge is essential for making informed decisions about where to allocate resources and how to finance alternative initiatives.
• Second, CFOs are uniquely positioned to provide objective insights into the trade-offs between different strategic options. Their unbiased perspective can help decision-makers see beyond the usual suspects when formulating strategy.
• Finally, CFOs have the credibility and authority to help build consensus around complex strategic decisions.

While the CFO’s role in strategy has traditionally been that of a critic or challenger, the changing landscape has necessitated a more active role. CFOs can no longer afford to be on the sidelines; they must be at the heart of strategy formulation. Only by doing so can they ensure that the organisation’s financial and operational objectives are aligned with its broader strategy.

The CFO as the catalyst for change

As a catalyst for change, the CFO becomes a lead partner to the CEO in shaping and executing future strategy. The CFO is essential to the execution of “real operational and financial options”. The CFO becomes the driving force in business transformation. This can include:

• Shifting the product market and customer mix,
• delivering value by making the business more efficient and effective,
• and creating new and distinctive capabilities.

CFOs are uniquely positioned to help CEOs see around corners, anticipate problems, and make better decisions.

The CFO as a strategic partner to the CEO is a concept that has been introduced previously. It has been around for quite some time. The CFO-CEO relationship is critical to the success of any organisation. CFOs bring a wealth of experience and knowledge to the table and play an essential role in helping CEOs navigate challenging times.

During economic uncertainty, CFOs are often called upon to guide how to weather the storm best. They are also tasked with helping CEOs develop strategies for growth during periods of prosperity. In essence, CFOs serve as a sounding board for CEOs, providing them with critical insights and advice.

The CFO-CEO relationship should be nurtured and cultivated. By working together, CFOs and CEOs can help ensure the long-term success of their organisations. When CFOs and CEOs are aligned, they can create a powerful force that drives results.