STRATEGIC FINANCIAL MANAGEMENT

UNIT - I

Strategic Financial Management

Definition: “the application of financial techniques to strategic decisions in order to help achieve the decision-

maker's objectives”

Strategy: a carefully devised plan of action to achieve a goal, or the art of developing or carrying out such a plan

Finance: the business or art of managing the monetary resources of an organisation

Management: the organising and controlling of the affairs of an organisation or a particular sector of an organisation

Strategy

Purpose: How will your organisation achieve its desired financial position?

To achieve this, you must ask:

WHAT – future position do you aim to reach?

WHERE – are you now?

HOW - are you going to get there?

According to Professor Michael Porter of Harvard Business School, Fundamental to the success of any company and to any effort to develop strategy is having a proper goal for business clearly in mind.

INTRODUCTION

A business involves the interest of various stakeholders. Stakeholders consist of

Shareholders Interest groups

The shareholders in the process of maximizing their wealth, try to get a leverage on every possible front by rewarding the other interest group.

The interest group includes Vendors and suppliers Lenders Employees Contractors Dealers Customers and Government.

All the shareholders and the interest group tries its level best to

grab maximum possible returns Sustain together Long term growth less controversies

Finally a win – win situation

To bring this win – win situation about all the time then we should have strategic financial management.

STRATEGIC FINANCIAL MANAGEMENT

Strategic Financial Management refer to both the financial implications or aspects of various business strategies and the strategic management of finances.

It has strategic approach to Cost management Sales and revenue management Fund- raising and fund – deployment Cost benefit analysis of

Expansion Diversification Down-Sizing Renovation

THE MAJOR INGREDIENTS OF STRATEGIC FINANCIAL MANAGEMENT

The two major factors of strategic finanacial management is

Cost and Benefit

These two factors rotate around three major ingredients essential for corporate success

People Technology Capital

An equilibrium between all these three ingredients will always acquire recognition and helps for sustained growth in long run.

People Capital Technology

Owners Amount invested Production

Employees Cost of sourcing office administration

Vendors Utilization marketing

Dealers Redemption Distribution

Contractors Communications

Customer Control

Government systems

THE NINE REFERENCES FOR STRATEGIC FINANCIAL MANAGEMENT

Structural Flexibility

Sustainability

Superiority First,Fast,Cheap and

GoodStrategic cost

management

Sensitivity (Time & ability to respond)

Systems

Selectivity (focus)

Soul searching for continued bench

marking

Success

Sanctity

THE NINE ‘S’ MODEL OF SFM

The nine ‘s’ model combines the quantitative and qualitative skills of a strategist .

Selectivity Most appropriate business choices Core competency Stretching of enterprise Profitable diversificationSystems Supportive mechanism Includes the technological,accounting and

operational system

THE NINE ‘S’ MODEL OF SFM Accounting system

• First tier- formal accounting requirements for reporting

• Second tier- purpose of responsibility accounting• Third tier- provide significant data to key

executives for decision making• Fourth tier- assists the owners or promoters in

taking strategic decisions

Sanctity Refers to ‘ethical economics’ of business

An ethical approach to business offers a long- term, sustainable ‘brand – equity’ to the enterprise which ultimately reduces every cost at every stage of product’s life cycle.

THE NINE ‘S’ MODEL OF SFM

Strategic cost management Refers to the micro level strategic analysis of

various cost structures and cost implications. It attempts to indicate the cost- molecules that are of strategic importance.

Sensitivity About strategic information management Strategic use of every piece of information flowing in and out. The highest degree of sensitivity comes from

the most efficient use of strategically important information.

THE NINE ‘S’ MODEL OF SFM

Sustainability Performance in long term strategic planning Combination of business strategy and business

funding strategy Sustainability also means ‘managing new

competitors’ with ‘extra cost on sustenance’

Superiority Position of leadership that an enterprise must attain Strategic plan has to offer the financial difference

between the ‘cost of leadership’ and ‘cost of following others’

Retain one’s identity at any cost in a competitive market

THE NINE ‘S’ MODEL OF SFM

Structural flexibility To achieve strategic advantages the dynamic

organization should have Human flexibility Technical flexibility Systems flexibility Financial flexibility Entrepreneurial flexibility

Soul searching continuous bench marking Financial alertness Innovation Exposure to new variables and parameters.