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Finance for Organisation Unit Leaders

Learning Outcomes  

  • Be able to impact growth, profitability and cash flows.
  • Be able to assist the executive leadership team and partner with the finance team in making strategic and operating choices.
  • Be able to understand the impact of different decisions on business and shareholder value.

Approach to Learning

  • Self-learning Material, including module notes, recorded interviews and lectures, etc.
  • Virtual Classroom, including faculty-led sessions, group-discussions and conversation forums.
  • Classroom, learner-centric sharing by faculty, numerical exercises, decision simulations, reflective-practice exercises, case studies, etc.
  • Reflective Practice, post-programme action learning projects.

IASCC Advantage

Access to our research in specific areas through Analytical Studies, Insights and Perspective papers, Reviews and Critiques, Working Papers and Information Resources.

Module Structure and Questions 

Choice of Growth Strategy: Financial Perspective

Considering that the choice of growth strategy is a complex choice, as it involves building a platform (a portfolio of technologies, products, services, solutions and markets) for growth, the senior leadership team is expected to provide insightful inputs for the executive decisions in this context. In addition, the senior leadership is required to prepare a plan that allows for effective resource allocation.

Our module questions, therefore, are:

  • What is the impact of volume-focused growth strategy on a firm’s margins and operating cash flows, when compared with a value-focused strategy?[1]
  • How does the choice of growth strategy impact relative allocation of resources across businesses and functions, e.g., split among market development, marketing, sales and distribution or operations functions for a given strategic choice (i.e., volume- and value-led growth strategy) or split across different businesses?

Evaluation of Financial Performance: ‘Knowing the Drivers’ and ‘Identifying the Determinants’

We often use the relative evaluation and the cause-effect assessment approaches to evaluate a business’ performance. While the relative evaluation approach helps us learn about the drivers (price, volume and mix) of performance, it is the cause- approach that helps us know the determinants effect (macro and market factors and the organisation choices) of performance.

Given that the senior leadership team has the primary responsibility for detailed business planning and performance management, our module questions are:

  • What is the impact of functional and business unit choices (e.g., introduction of a design variant for a specific segment, redesign of operating processes, introduction of new product, etc.) on business’ growth, profitability and cash flows?
  • What is the nature of relationship between market, operating and financial performance, i.e., how does market (e.g., gain or loss of market share) or operating (e.g., improvement in quality, higher productivity, reduction in cycle time, consistency in delivery, etc.) performance impact the financial performance of a business?

Investment Strategy: Market Coverage

While the choice of market coverage, i.e., the scope of a firm’s business, is the executive leadership’s team’s responsibility, the inputs are provided by the senior leadership team. In addition, the senior leadership team has the responsibility to allocate & manage resources and manage performance.

Our module questions, therefore, are:

  • How does the choice of coverage strategy impact functional and business unit resource allocation choices?
  • How do we manage the market, operating financial risk associated with each coverage strategy?
  • How do we measure and assess the financial success of each coverage strategy?

Evaluation of Capital Investment Decisions

Investment decisions, by their very nature, are capital-intensive, often have long gestation period and deliver value over years (if not decades). Evaluation of these decisions requires us to build range forecasts, simulate cash flows, assess the business as well as financial risk and identify the sources of uncertainty. Once the cash flows estimates are in place, we adjust them for time-value of money and the cash flow risk to arrive at the value the project can add for shareholders.

Our module questions, therefore, are:

  • What are the cash flow requirements of a given investment strategy and what value can we create for our shareholders given the investment plan?
  • What is the nature of uncertainty and how do we resolve it?
  • What is the nature of risk, how do we assess and manage it?

Pricing for Value

Price level and its behaviour is an important driver of a firm’s profitability. In a low margin business (say, 10%), the firm’s profit level will go up by 10% with just 1% increase in price – all else remaining constant. In addition, the firm’s pricing decisions have a significant impact on its value-proposition in consumer’s mind. A firm that is willing to discount for volume too often may not find it easy to price for value ever.

Our module question, therefore, is:

  • How do align the specific pricing decisions with our pricing strategy and the value we are delivering to our clients, given the customer relationship, product life-cycle, portfolio of offerings, etc.?

Resource Allocation for Market Effectiveness

We measure market effectiveness of any effort or spend by assessing the extent to which it serves the customer purpose, i.e., delivers value or benefits to a customer. Given that we work with exact as well as proximate causes for changes in performance, we use recursive process to assess the effectiveness of an activity and the associated expenditure. For example,

  1. Does the incremental spend for improving customer service indeed deliver the improved customer service and is the improved service level sustainable?
  2. Does the improved customer service lead to increased customer satisfaction?
  3. Does higher customer satisfaction result in higher customer retention?
  4. Does higher customer retention result in higher sales and thereby higher profitability?
  5. Does higher retention help us gain insights into customer needs and thereby enhance our ability to create and deliver differentiated value?

Our module questions, therefore, are:

  • How does a firm align its costs with creating, delivering and communicating contracted, promised and expected value?
  • How do we assess the effectiveness of our costs?

Resource Allocation for Operational Effectiveness

While the idea of market effectiveness focuses on creating and delivering value to a firm’s customers, the idea of operational effectiveness is about delivering consistently the required output of required quality in required time.

Our module questions, therefore, are:

  • How does a firm align its costs to lowering the resource and effort intensity of its operations, given the customer value?
  • How do we align our costs to delivering as consistently and as quickly as possible, given the economic feasibility?
  • How do we align our product, process and people costs for operational effectiveness?

Managing Costs to Manage Growth and Profitability

While the structural cost advantage is the result of strategic choices, the every-day operating choices (i.e., the way we organise our work and execute the plan) determines the efficiency of our operations.

Our module questions, therefore, are:

  • How do we measure the impact of operating choices on the efficiency of our operations?
  • How do we enhance the cost-productivity in our business?

Business and Equity Valuation

While the senior leadership is not responsible to manage the business for shareholder value, they do need to understand the impact of the firm’s strategic as well as operating choices on business and equity value. Our module question, therefore, is:

  • What is the impact of my choices on business and equity value of my firm?

Management of Exchange Rate and Inflation Risk

Changes in exchange rates, combined with changes in general inflation, can have significant impact on a firm’s revenue and cost structure. It is, therefore, imperative to assess the impact of these changes on firm performance. The adverse impact of these changes can be mitigated either by passing on the related costs to the customers or by delivering higher productivity in operations. Our module question, therefore, is:

  • How do we contribute to managing exchange rate and inflation risk through our operating choices?

[1] It is the same question that the executive leadership is expected to ask.