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Friday, January 13, 2023

The Role Finance Plays In Strategic Planning and Decision-Making

 We're living through a time of unprecedented times of economic transformation. Businesses are increasingly going digital and adopting innovative approaches. Brands are getting better at stakeholder engagement and outreach. Economies are focusing on sustainability. What is the one thing that lies at the foundation of every fruitful endeavour? Finance. It is the fuel that propels every business, enterprise, and economy. This is the reason some of the most famous visionary leaders have been brilliant financial minds. So let us look at how finance impacts the decision-making process and how some top financial leaders have helped change business models.

Tracking Success - Financial metrics are at the very heart of success tracking and course-setting in most business organisations. They guide nearly everything from product specifications to market identification, from talent acquisition to enterprise growth. Uday Kotak, Managing Director & CEO, one of the top visionary leaders of India, was driven by the passion for delivering financial value to investors and stakeholders as he transformed Kotak Capital Management Finance Limited into Kotak Mahindra Bank, one of the top 4 private banks in the country with a net profit of INR 8,572 crore (March 2022).

Strategic-planning – Long-term business leaders understand finance's key role in the decision-making process. Any corporation or business venture is premised on fiscal success. Such financial goals may, however, not be immediate or short-term. A start-up, for example, may focus on growth and brand building in the early years of operations, but in the long term, this has to translate into increased revenue and profits. Every strategic planning and decision-making process undertaken in every business is driven through finance as it decides the survival and success of every business enterprise.

Finance fuels innovation – Like most business decisions, innovation, learning, and development are also fuelled by finance. Understanding the value of funding such transformative studies can be the key to the success of a business. Let us understand this with an example. Sanjiv Bajaj, the Chairman and Managing Director of Bajaj Finserv, is one of India's most famous financial personalities. When he took over the NBFC, the banking and financial sector was sagging under the weight of traditional operations and outdated benchmarks. His zeal and passion for innovation led to the digital transformation of the organisation and the adoption of tech platforms that redefined the sector. In turn, this kept Bajaj Finserv well ahead of other market players and has played a definite role in its success. Finance and innovation are inexorably linked.

Operational efficiency – The launch of a new product, delivery system, branding, marketing, hiring, investment into upgradation of systems – most business decisions are made on financial terms. Looking at the equity market closely, it is easy to understand how financial value is assigned to nearly every news that influences the organisation. Even legislative factors that influence the industry as a whole can have a profound impact on the financial value assigned to the organisation. This is why most financial leaders are responsible for determining operational efficiency and evaluating the most significant business decisions.

Economic value-added goals – Economic value-added (EVA) are used to determine the true economic profit of a business enterprise. It is one of the most common tools employed by most business organisations to assess the impact of business decisions and operational models on capital wealth or shareholders' investments. It is calculated financially by determining the difference between the company's market value and equity on the books. As a result, EVA is often the sole guiding principle for business operations and decision-making.

Redefining success -

With the onset of the COVID-19 pandemic, most organisations and enterprises across the world have been forced to reassess their business models and their impact on the environment. Due to the greater dependency on technology and research, industries have refocused their priorities. Stakeholders are also looking at more than the financial value a business creates. Despite these changes, financial viability and success remain the determining factors that influence the strategic planning models employed in most organisations. Every business decision is impacted both by the financial resources ploughed into them and by their monetary outcomes, at least in the long run.

Summary - Finances are central in determining nearly every aspect of a business organisation and its operations. From evaluating the business models and operational strategies to detecting inefficiencies, from determining the value created by the business for shareholders – nearly every decision is made regarding the financial impacts. Most famous visionary leaders understand that greater ideals that impact economies and influence people's lives require sound financial principles to remain viable and achieve any measure of success.

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