CFO, how are you planning for success?

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What a ride the last few years have been! One unexpected event after the other. There’s so much volatility that we’ve given up on the label “normal”. We can call it the “Next Normal,” as McKinsey does; however, when the situation changes so fast, do we even experience it as normal anymore? 

Enough with the philosophical questions. This is the reality in which CFOs need to do company planning and forecast the future. CEOs need this and are willing to accept best guesses and reprioritization whenever necessary. However, it has proven challenging for CFOs to accept the new reality. “If we cannot forecast the future with reasonable certainty, we won’t release a forecast” seems to be the mantra. 

There are also challenges once the forecast is released and reality happens. Many finance teams measure forecast accuracy and punish people for not hitting the forecast. We move on from these old dogmas and institute new planning and success criteria. That’s why we made financial planning a top 10 priority for CFOs in 2024. This blog will focus on tangible shifts CFOs should make to their planning process. 

Eight significant shifts 

Earlier, we discussed how CFOs could exercise more strategic leadership. We highlighted ten strategic value drivers that determine a company's success. We pointed to McKinsey's research, which shows that a company needs to make two or three big moves to create more value relative to competitors. It would only seem fitting to return to McKinsey’s view on what changes we should introduce into our strategy process to enable these big moves. 

McKinsey has highlighted eight significant shifts it wants senior management to implement. However, the CFO should take the lead in this work. The simple reason is that it’s all about planning and resource allocation, which falls under the CFO's remit. Let’s first highlight the eight shifts and then discuss how CFOs can make them happen. 

1. Strategy as a journey: Reality doesn’t change in a set rhythm, and we need to be prepared to discuss the strategy whenever it is relevant

2. Real alternatives: A plan with no alternatives is rarely a good plan; hence, any recommendation we make for making choices should include a discussion of the real alternatives

3. One-in-ten-wins: Too often, corporate resources must be spread more thin across too many initiatives. Instead, we should identify breakout business opportunities and bet big on them.

4. Big moves: You can only create more value if you make bigger moves than your competition. It takes two or three big moves to move up the power curve.

5. Liquid resources: If you allocate all your resources in the budget, you will not be maneuverable when reality changes. Ensure you have at least 20% liquid resources to seize the moment.

6. Open risk portfolios: Instead of sandbagging targets, executives should be ambitious and present their best plans. This gives them the option to discuss risks in the portfolio openly.

7. Holistic view: Create an unbalanced scorecard including hardcore financials and big strategic moves with an outlined probability of success

8. Forcing the first step: Break your big moves into 6–12-month increments, making it tangible what needs to be achieved when and giving a chance to test the strategy in the first six months

Ad 1: Strategy as a journey

Most companies make 5-year strategic plans, which makes sense if you can adjust the course when needed. Doing this is what we described in how CFOs can manage the Next Normal. Here's a quick summary.

1. When making choices, be sure to document your assumptions,

2. Establish a confidence interval for your assumptions,

3. Track your assumptions in real time,

4. it should trigger a strategy action session whenever reality breaches your confidence interval. 

Ad 2: Real alternatives 

Strategizing is about making choices. That means you need to have something to choose between. CFOs should up their game regarding what they bring to the table. Only make a recommendation by suggesting two good alternatives that should be able to solve the issue independently. You should balance the pros and cons without favoring your recommendation to an extreme. This will ensure a higher-quality strategic discussion and lead to better choices. 

Ad 3: One in ten wins 

“Bet big or go home” could be a new CFO mantra. It’s easier said than done since resources are usually tied up in business. At the same time, there’s politics where business leaders all want their prestige project. To move on from this, CFOs should review their current investment and project plans and ask project managers if each project has the ideal resources for success. If not, you should carefully assess which initiatives will likely provide the most significant benefits. Even if they all have the needed resources, you evaluate which will likely yield the highest ROI. Go big on these and scrap the rest! 

Ad 4: Big Moves 

Your big moves can be made on M&A, resource allocation, capital expenditure, productivity improvements, and differentiation improvements. Each of these options should be crystallized from a specific company standpoint. Evaluate the list of potential big moves and decide which suits your business and current situation. Create projections and a business case for each move and present them to senior management for decision-making. The decision shouldn’t be made lightly, as this will be a defining move for any CEO's tenure. 

Ad 5: Liquid resources 

Most companies have a large part of their resources tied up in existing business and future capital expenditures. This leaves them with little flexibility to seize the moment when opportunity comes knocking. CFOs must mandate that a plan to free as much as 20% of total company resources can always be executed. To get started, review how much of your budget is currently tied up in fixed spend, and if more than 80%, create a plan to free up resources. That brings you to the more exciting part, where you scan the current business landscape for attractive new opportunities. If better opportunities than your current projects are available, you can free up the resources and take advantage of the situation. 

Ad 6: Open risk portfolios 

There’s a need to be much more open about risk-taking in companies. Too much sandbagging is happening today and unnecessarily ties up many resources. It’s better to ask for exactly what’s needed and then highlight the risks associated with reality turning out differently. To assess how you currently take risks, Reflect with your stakeholders on how you created your current strategy/plan and attach a probability score to each initiative in your plan. If the plans are safer than P50, re-evaluate what you could deliver in a P50 scenario and present your new plan to senior management for review. 

Ad 7: Holistic view 

All spoils go to the victor, right? It certainly feels like that in many companies. Those who meet or beat the budget are the true heroes. What if the one that always beats the budget also sets the most conservatively? What if the one that typically underperforms the budget creates more value than the conservative ones who beat the budget? We’re not saying it’s always like that, but it’s a real risk, and that’s why CFOs should take a more holistic view of performance. Reflect on how you are currently evaluating performance. Do you reward conservatism and risk-taking equally if both are successful? Use the open risk portfolio to reassess the performance of business leaders. 

Ad 8: Forcing the first step 

Planning is half the journey, it has been said. However, there’s no journey if the first step is not taken. There’s a risk when doing five-year planning that the first fundamental steps are not taken, but that business as usual continues. That’s why CFOs should enforce that first steps are taken. Here’s how to do it: Review your current strategy/plan to assess how it is broken down into tangible steps. Are there 6-months milestones? Are the 6-months milestones broken down into more concrete steps for execution? If the answer to both questions is yes, consider how you follow up on these and what feedback loop you’re running. What’s critical is to know as soon as possible if the first steps land you where you would expect. 

Planning goes way beyond the numbers, but often, that’s unfortunately what it’s being reduced to in companies worldwide. It’s not easy for CFOs to change decades of doing things a certain way. However, our volatile world calls for different actions! 

Forcing the first step 

Much like planning is about forcing the first step, we must force the first step in making these eight shifts in ways of working. The good news is that many of these shifts are within our control. Here are some questions to consider addressing how to make each of the eight shifts. 

• How often are you reviewing your strategic progress, and how easy is it for you to change course?

• How often are alternatives considered when deciding between strategic and tactical actions? Consider not only what happens in Finance but also what business leaders do.

• Have you made some tough prioritizations when allocating resources and killed any initiatives lately?

• Are you already making any Big Moves, or are you starting from scratch? This will help you with your next steps.

• How many resources do you have in your war chest? Here, you can also consider untapped bank facilities, among others.

• Do you know the risk profile of your current strategy and other tactical initiatives?

• How are you rewarding business leaders for performance?

• After reading this blog, reflect briefly and post in the comments or message us about your first step. 

We recognize that making these shifts will be challenging. You don’t need to make all of them at once, either. Perhaps make a staged plan where you address your most significant gaps first and close the rest later. We’re pretty sure, though, that most companies struggle with this. Hence, you’re quickly securing a competitive advantage by making these shifts! 

Do you think it’s feasible to plan differently for your company? How would any of these shifts change the game for you? We firmly believe that changing the process will drive significant value creation and give you a much-needed leg up vs. the competition. It’s time to force the first step in changing your planning process. Do you agree?

This was the ninth blog post in our new series, "The Top 10 Priorities for CFOs in 2024." In this series, we will explore the issues even more deeply, share candid perspectives from the frontlines, and share actionable advice on what the Office of the CFO should do to create more value. Read the previous articles in the series below.

The top 10 priorities of CFOs in 2024

How CFOs can manage the Next Normal

More strategic leadership is needed from the CFO

From CFNo to CFGrow

It's time for CFOs to whip their company into shape

CFO, your days as a co-pilot are over!

CFO, are you on top of your ESG reporting?

How CFOs can triumph in the war for talent

CFO, your time get on top of data is running out

Catch the insights from our latest series "The Modern Finance Function" here.

The journey to the modern finance function

What lessons can we learn from successful finance transformations?

What are the most critical teams in the modern finance function

A month in the life of The Modern Finance Function

Why benchmarking is key to unlocking performance in Finance

Demonstrating the success of The Modern Finance Function

The Modern CFO in action

You can read all blog posts in our previous series "Demystifying AI in Finance & Accounting" below.

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Why AI is the perfect tool for financial predictions

5 key ways the dynamic duo of AI and Audit will revolutionize Finance

Why AI is a game-changer for real-time business intelligence and accounting

How to supercharge your finance career and stay ahead of the trends in AI

5 ways AI can streamline your ESG reporting

Smart ways AI is re-making accounts receivables and payables

How AI turns financial reporting upside down

What is the future of AI in Finance?

How to unlock the power of AI in Finance

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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn, which has more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner”, a long-time Finance Blogger, a LinkedIn Learning instructor, and a Top Voice on LinkedIn with 340,000+ followers.