Introduction of strategic financial management

1. Strategic Financial Management (SFM)
SFM is “the assessment of Strategic Options, Choices and
Business performance by both strategic and financial
analysis”.
SFM examines how a united view of strategic and financial
issues can become a practical reality.
This is achieved by looking at
• the links between corporate strategy and SFM
• managing for value-enabling financial management to play a
positive and proactive role in strategic management.
• the process of value management
- These include strategic management accounting and
strategic and financial planning.
• key applications including strategic investment decisions,
acquisitions, strategic cost management, and value business
change.
• implementing SFM.

2. STRATEGY:
Simplicity:
Simplicity resides in their being a relatively a few
number of competitive fundamentals which are
limited up to deliver VALUE.
EX: Brand Differentiation.
Service Excellence.
First mover advantage.
Thinking:
Strategy is also about thinking – Strategic Thinking?
Where are we? Where do we want to reach?
Results – Focus:
Strategies do not necessarily have very easily
quantified value these strategies ultimately have
only if and when are cashed in for real money.

3. Action:
Strategy must also therefore be about action.
Because managers are not held accountable for both
the Strategic and Financial performance of business
they can continue to misjudge the future and get
away with it.
Timing:
Strategy very much requires close attention to the
timing, specifically external events of other
competitive conditions. Time-window of a strategy
can have a profound impact on its ‘Financial value’
(IBM).
Energizing:
Strategy is essentially an energizing force provides
fresh vigor and sense of purpose into managers
otherwise buffeted by operational turbulence.
Goal Driven:
Strategy mean clear linkages with specific
operational and financial goals. This means not just
setting directions but also establishing controls.

4. Future:
Strategy is about your future.
By integrating strategy more closely with finance, we
are able to show strategy is relevant because the
question is now always asked “What is the value
(financial) of the strategy?”
Key links between corporate strategy and financial
analysis:
Strategic Analysis.
Strategic Choice.
Strategic Implementation.
Strategic Value and Learning.
Strategic Analysis:
In strategic analysis we analyze our current strategic
capability, the expectations of stakeholders and
culture.

5. Strategic Analysis and Financial Analysis
Strategic Analysis Financial Analysis
Mission • Is it stretching but • Does this mission guide (or
achievable? misguide) strategy
• And is it the essence of development?
what we are about? • Does it distract or even
destroy Share holder value?
Objectives • What are our strategic • Are these consistent with
goals? Financial realities? Present
and future?
Strategies • How do we achieve our • What is the value of these
goals – with competitive strategies?
advantage?
Actions • Do these support our • What is the value of the
Strategies? sets of strategies decisions
• Are these sufficient? (‘Strategic project set”)?
Control • What strategic milestones • What financial returns
do we need to pass and (profit and cash) do we
when? expect?

6. Examining Strategic Options
Strategic Choice Financial Behavioral
Evaluation Influences
Suitability • What are the • What are the  Do we really want
competitive benefits/costs of to work this hard?
benefits (now and exploiting it?  How do we
future)? • What will it cost to reinforce
• What entry develop and protect commitment to make
barriers and this position? it happen?
switching costs
can be created and
how can our lead
be maintained?
Acceptability  Is this acceptable  Is the level of  What are
to all returns consistent stakeholders’
stakeholders? with risk? agendas and how
can we steer these?
Feasibility  Is there a market  Is there opportunity  Do we really
opportunity and within our financial believe it is
have We the Constraints? possible?
capability?

7. Strategy Implementation
Strategic Analysis Financial Behavioral
Analysis Issues
Organizational What organizational What value is Will a particular
Structure and structures will meet added, diluted or structure add value
Design the competitive destroyed by a given our culture?
challenge? specific
organizational
structure?
Resource What businesses What is the likely What will prevent
Allocation and should we invest impact of resource us from re-
Control more in or less in and decisions on allocating
what competitive financial resources to where
performance do we performance? it needs to go?
expect?
Managing What key changes What is the What behaviours
Change are needed to targeted value of would either
support the strategy organizational enhance or erode
and how should change the value of
these be managed? programmes (and organizational
their costs)? change?

8. Financial impact of transformational change
Implementation and value in a multinational computer company
Transformational change may seem an abstract notion, but when we
examine specific transformational change programmes these do have
some very specific financial benefits which can be quantified.
Transformational change Key financial benefits
 Products simplification.  Reduced products costs.
 Business process re-engineering.  Reduced processes costs.
 Acquisitions and alliances.  More revenues, margins and
 Organizational flexibility. future opportunities.
Accelerates product launches-
Continuous Improvement more revenues-and reduces costs.
 Quality management. Key financial benefits
Avoids loss of customers and lost revenues-
and reduced costs
 Out-sourcing non-core activities.  Improves margins and reduces costs of
 Management skills. distraction.
Team building.  Costly management errors are avoided; New
opportunities created and harvested.
 Costs of undue political activity avoided.

9. Strategy, Value and Learning
Strategic learning occurs when managers reflect on their
strategic and financial recipes which consciously of
unconsciously – drive the decision making process. This may
result in insights including:
 Our views on ‘what business we are in’ or ‘should be in’
need to change.
 Whether we can make sufficient financial returns out of
certain kinds of business.
 We need to review our profit and cash generation
expectations, or our investment priorities.
 due to adverse shift in competitive environment we must
realize that we need to undertake major restructuring and
reductions in our cost base and to remain competitive and
profitable.

10. Contrasting strategic and financial analysis:
Strategic Analysis… Financial Analysis…
Captures a wide range of variables Focuses on a narrower range of
– both external and internal. variables – primarily internal.
Evaluates tangible and less tangible Is primarily concerned with tangible
areas of value. areas of value.
Involves mainly qualitative Involves more quantitative
measures. measures.
Has longer-term horizons. Has a bias towards shorter-term
(with some exceptions)
Is about creative thinking. Is more about the control process.
Deals with broader uncertainties. Employs techniques for measuring
specific risks.