Strategy and Finance Alignment: The Key to Optimizing Target Operating Model

Editor's Note: Take a look at our featured best practice, How to Build a Target Operating Model (TOM) (35-slide PowerPoint presentation). With recent developments and challenges, such as the impact of COVID-19, the extent of organisation flux is predicted to rapidly increase, such that many organisations are likely to be in a nearly permanent state of organisational flux. We can characterize organisational flux as the continuous [read more]

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Industries today are in a state of flux driven by volatile market forces. Although every company devises a strategy for creating long-term differentiation for goods and services, still various dynamics are emerging.

Across industries, market changes are affecting how Finance needs to operate. Finance must anticipate the implication of these various dynamics and forces evolving in the global economy.  These various forces are now pushing the corporation to align its Finance with its Strategy.  In effect, an optimal Target Operating Model is created as a result of aligning Corporate Finance and corporate priorities.

Conquering Market Volatility through Strategy and Finance

Strategy and Finance are strategic priorities that are essential to conquering market volatility in today’s global economy.  We are now encountering volatile market forces that are affecting global trends. There is the rising affluence of middle classes in emerging markets, rising risk profiles in individual markets.  Market consolidation is being pursued and there is now a dramatic shift in consumption patterns and the emergence of consumer power.

The changing market forces have pushed Finance to strategic directions. In the face of all these global trends, Finance is increasingly being streamlined and is leveraging provider’s technology, investment, and global scale. Finance is evolving from a purely transactional activity to strategic.

Finance organizations are rapidly realigning talent to emerging corporate priorities to improve business partnerships.  When Finance simultaneously develops and strengthens new skills and systematically measures, dissects, and resolves operational issues, then true gains are realized.

The 5 Key Elements of Governance

Finance can strategically respond to changing operational requirements.  But an operating model is required that supports the strategic alignment of both Strategy and Finance. This can be done with the application of the 5 key elements of Governance.

1. The right configuration. When there is a right configuration, a clear decision-making hierarchy exists that allows monitoring of performance and issuing of resolutions.

2. The right mandate. With the right mandate, governance teams are empowered to act on issues that they oversee. There is ownership of plans that incorporate processes, policies, and technology changes globally.

3. The right metrics. The right metrics is the key element that establishes the standards of measure in terms of performance. It can effectively govern performance.

4. The right tools. Investment in the right tools can lead organizations to continuously gather enhanced insights into performance.   Leaders can effectively visualize performance and analyze root causes with the use of these tools.

5. The right people. An efficient process is ensured not only with the right tools but also with the right people.  With the right people, globally distributed process teams are formed and joint decisions are created with clear responsibility assignment matrices.

Communicating the Strategy

Communicating the strategy is often a neglected pillar of the overall plan.   The strategy’s vision and pace must be conveyed to all members of the organization. When this is done, it keeps troops aligned thus enabling leadership to focus on other dimensions of the Target Operating Model.

Interested in gaining more understanding of Strategy and Finance Alignment? You can learn more and download an editable PowerPoint about Strategy and Finance Alignment here on the Flevy documents marketplace.

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