Financial decision should facilitate the decision making process, but not drive strategy.
Strategy is about preparing yourself for the future and continually questioning and examining your assumptions – asking ‘what if’ is an essential part of formulating and executing strategy.
Executive Education facilitator Susan Hansen outlines common decisions companies make when they focus on financial outcomes which can work against an organistion’s strategy. These decisions may cost more in the long-term.
Cut staff numbers
Headcount reduction could improve your bottom line. But it may fly in the face of the strategy to ‘always meet customers’ needs on time at any time.
Outsource customer service
Taking your call centre off shore may appear to save millions, but an organisation needs to think carefully about how customers react. What will it to do to your brand, the human capital, or your goodwill?
While revenue can increase if you reduce price, it’s important to question if this consistent with where you have positioned yourself in the market. Once you reduce your price it may be hard to get customers to pay more for your product again.
Using budgets as a management tool
Budgets often drive dysfunctional behaviours. They can be misunderstood by people in operations who need to understand the limitations of budgets and what to do about them.
Extending supplier payment terms
Working capital management is a critical success factor in many organisations. The less capital tied up in the business, the greater the return on capital will be. Extending supplier payment terms is an easy win to reduce the capital, but the damage to the organisation’s reputation is hard to measure.
Written by Susan Hansen, facilitator of the upcoming Finance for Non-Financial Managers and Business Forecasting, Budgeting and Strategic Planning courses.
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