Saturday, March 27, 2010

Getting Strategic Planning and Financial Planning in the Same Bailiwick

By partnering with operations on balanced scorecard initiatives, financial managers are helping their companies focus on critical business processes and gain consensus on the critical set of measures to help drive desired business results. In addition, with the explosion of Enterprise Resource Planning (ERP) and e-Commerce systems, financial executives are leading the charge in going from theory to practice by developing a cascading measurement architecture and providing the key linkages to other relevant information (e.g., products, projects, performance plans, and organizational data).

Certainly, the financial community has responded to the 'relevance' challenge that was laid down over a decade ago1. In fact, relevance has been contagious. Already companies are tying balanced scorecard initiatives to leadership and strategy; making sure operating managers are focusing on the right issues and priorities, and coordinating the actions of the company as a whole in implementing those strategies2.

While the role for today's financial managers is quickly moving upstream in the strategic planning domain, the challenge becomes even greater in light of the accelerating pace of change. This reality is quickly rendering obsolete the traditional approaches to corporate governance, such as 3-5 year strategic plans, annual planning and static budgets. In this new environment, financial managers can play a key role in driving the corporate agenda through their sponsorship and support of projects and investments that deliver critical business capabilities. To provide useful financial insight, sooner rather than later, financial managers need to think about business strategy as a process of continuous course corrections, evaluated more like a series of 'real options' than a single projected cash flow3. While the concepts behind real options are certainly familiar to most executives, the trick to identifying, valuing and making strategic choices lies in the complex and often overwhelming task of understanding the linkage between initiatives and changing corporate goals and managing the interaction among projects.

This article provides a breakthrough planning approach for rapidly realizing the business capabilities dictated by strategy and then through the financial lens of 'real options' shows how to time strategic choices

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