As a business owner or CEO, how clearly are you able to state your company’s operational and financial strategy? Are you comfortable concisely articulating your company’s primary objective, scope, and advantages, off the top of your head? If you find it difficult, it might mean that your strategy isn’t quite as well-defined as it could or should be. And that is likely costing your business in more ways than one. Do you have a CFO that is driving the development of your strategy and helping to monitor and implement it?
According to recent findings from The National Center for the Middle Market, more than one-third of middle market businesses operate without the advantage of a well-defined overarching business strategy. And they pay the price with a decreased average growth rate of 6.8%, a rate that is 26% lower than the 8.6% average reported by peers that do have a clear and well-defined strategy to guide critical business decisions.
This research also revealed that a clear strategy is inextricably linked to better corporate performance in these several important ways:
A well-defined strategy helps companies optimize their limited resources.
It’s impossible for companies, especially middle market companies, to be everything to everyone. Organizations that want to thrive long-term need to make informed choices and tradeoffs between offerings, markets, and customers. They need to understand, through data driven insight, what they will do—and what they won’t do—in order to create a competitive advantage and focus their resources on the best opportunities for profitable and sustainable growth.
A sound business strategy that clearly describes the basic elements of where the company competes, what it sells, how it wins and defends markets, and how it sets itself apart from the competition is the cornerstone for better decision-making that will help achieve long and short-term growth objectives. The CFO is usually the best person in the company to help pull together all of these elements needed to craft a good strategy.
A clear strategy enables companies to articulate their value, and grow even faster as a result.
More than three-quarters, 76 percent, of middle market companies with a well-defined operational and financial strategies, can clearly speak to how they add value for their stakeholders. This is compared to just 26 percent of companies with a less clearly defined strategy. Companies that can clearly articulate their value boast an annual revenue growth rate of 9.3 percent, which is 50 percent higher than peers who are not able to easily communicate the value they offer.
Companies that understand their strategies also understand their challenges and how to effectively address them.
Companies that excel at defining their business strategies appear to have a much better grasp on the hurdles they face going forward. They are more than twice as likely as peers without a well-defined strategy to say that they have a clear understanding of the challenges facing the firm (58 percent compared to 23 percent). They are also much more likely to understand what activities, assets, and resources are needed to overcome those challenges (61 percent vs. 26 percent). In short, companies that know who they are and what they hope to accomplish have more realistic, feasible plans for achieving their target objectives. Clearly, CFOs are critical helping to delineate the resources, assets, and capital needed to achieve strategic and financial goals.
A well-defined strategy is easier to successfully execute.
Companies with well-defined strategies are more confident that their strategies will lead to success. And they are right: When strategy is well-defined, satisfaction with strategy execution triples from 23 percent to 77 percent. The correlation works the other way, too. Companies that say they execute strategy well are highly likely to say they have a well-defined strategy.
If you are a small or middle market business owner or CEO within the San Francisco Bay Area or Silicon Valley, in need of an experienced part-time CFO to help your company scale effectively, while improving cash flow and profit margin, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.
CFO Growth Advisors (CGA) specializes unique and highly effective growth strategies that are tailored to help companies grow more quickly and efficiently while improving sales & profit growth. Contact us to learn more.