Financial Management 1B

UNIT 1: Introduction to Financial Strategy

WEEK 2 – LESSON 2
 Fin Man 1B (NEW)
Part 2:
Introduction to financial strategy
 Learning Outcomes
By the end of this session you should be able to…
Define strategy and the different types and levels of strategy
Explain the purpose of strategy
Explain the impact of 4IR to the financial function
Discuss the importance of a digital strategy and
Discuss the impact of 4IR to an organisation's strategy

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 STRATEGY &
LEVELS OF STRATEGY
What is STRATEGY?

•How does it differ from strategic planning?

•How does it differ from strategic plans?

•How does it differ from strategic actions?

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Strategic Planning vs Plans vs Actions
PLANNING PLANS ACTIONS
It is a disciplined effort A statement/document Activities and
that produces of long-term goals and specification of
fundamental decisions a definition of the resources require to
and actions that shape strategies and policies achieve a specific
and guide what an which will ensure objective
organisation is, who it achievement of these
serves, what it does and goals
why it does it, with a
focus on the future.
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 What is STRATEGY?
•Is a “course of action”….
•To achieve sustainable competitive advantage

HOW?

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 This is how?

Performing different activities from our rivals

OR
Performing similar activities in a different way

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Introduction to Strategic Management
• DEFINATION OF STRATEGY
(Johnsons, Scholes and Whittingham)

• Direction and scope of an organisation

• Over the long-term
• To achieve competitive advantage
• Through the configuration of resources
• Within a changing environment
• To meet the needs of
Markets
Stakeholders
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Strategy, at its core…
The core of a company’s strategy concerns its markets and its
products and is about choosing:

• What do we do?
• How to compete? (Cost or differentiation)
• Where to compete? (Geographical/segments)

A means to achieve a sustainable competitive advantage

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Chartered Management
Accountant
The role of the Chartered Management Accountant (ACMA)
is to:
Help organisations establish viable strategies and
convert them into profit or value for money

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Strategy & Management Accountants?
Decision making is becoming a source of competitive advantage and
value creation;
In this process the management accountant is responsible for the
identification, generation, presentation and interpretation of
information relevant to:
1. Financial analysis (current position)
2. Financial planning (goals and objectives)
3. Financial control
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What supports strategy?
Mission
Purpose of the organisation

Goals
Intentions behind decisions or Desired end-result
Trade-offs
Choose what to do & what NOT to do!
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What supports strategy?

GOALS

AIMS OBJECTIVES
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What supports strategy?

Aims
Non-operational/Qualitative

Objectives
Operational/Quantitative

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Vision and Mission
Vision: Where an organisation sees itself going in the long-term (future)

Mission: An entity’s ‘fundamental objectives….expressed in general terms’

CORPORATE
MISSION
STRATEGY

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UJ’s Vision and Mission
Vision
The vision of the UJ is to be "an international University of choice,
anchored in Africa, dynamically shaping the future".
Mission
The mission is "inspiring its community to transform and serve
humanity through innovation and the collaborative pursuit of
knowledge"
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2. Business Goals and Objectives
Goals: (Mintzberg)
Intentions behind decisions or actions,
State of mind that drive individuals or collectives of individuals
To do what they do

Used interchangeably with OBJECTIVES & TARGETS

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Business Goals and Objectives
Management by objectives (SMART)

Specific – A clear statement

Measurable – Assess performance against the objective
Achievable – If not achievable, people wont bother trying to achieve them
Relevant – Appropriate to an org. mission & help fulfill mission
Time-related - Define a specific time period to achieve objectives
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UJ’s Goals/Objectives
Goals/Objectives – based on Strategic Plan 2025

Excellence in Research and Innovation.

Excellence in Teaching and Learning.
An International Profile for Global Excellence and Stature.
Enriching Student-Friendly Learning and Living Experience.
Active National and Global Reputation Management, and
Fitness for Global Excellence and Stature (GES).
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Strategic Management: Levels of strategy
Hofer and Schendel further distinguish strategies:

Overall purpose and scope of the organisation

Concerned with how an operating or strategic business

unit approaches a particular market.

Refers to main business functions such as sales,

production, purchasing, human resources and finance

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 Strategy…
Strategy can be thought of in THREE headings…

Raising capital Outperforming Using capital to

Competitors to provide resources
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Competitive Advantage

Organisations aim to achieve

competitive advantage

that leads to superior profitability

and return on investment.

Seeking supernormal profits

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Competitive Strategies
Competitive Advantage: It is anything that gives one organisation an edge over
its rivals and Porter believed there are THREE generic strategies for competitive
advantage

Cost Leader – Lowest producer in the industry as a whole,

Differentiation – Exploiting a product or service that the
industry as a whole believes to be different

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Competitive Strategies
FOCUS (Narrow): It involves a restriction of activities to only part of
the market (segment) through a lower cost or differentiated product
in that segment.

Cost Focus – Cost leader for a particular segment

Differentiation Focus- Differentiation for a chosen
segment
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FINANCIAL STRATEGY
Introduction to Financial Strategy
Issues that are covered by a financial strategy:
Raising capital and sources of funding
Long Term financial planning
Functional or departmental budgeting
Capital structuring (and gearing)
Cash management
Reinvestment of profits and cash surpluses
Capital investment
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Financial Management Decisions
Maximisation of shareholder wealth

Investment Financing Dividend

decision decision decision

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Financial Management Decisions

 The financial manager must decide on:

 Internal investments (to enhance internal growth);
 External investments (via acquisitions); and
 Disinvestments (withdraw from unsuccessful projects).

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Financial Management Decisions

 The financial manager must possess knowledge of:

 Sources of finance and their respective cost;
 Capital structure (balance between debt and equity);
 The difference between profit and cash flow.

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Financial Management Decisions

Dividend decisions relate to the determination of:

 How much and how frequently cash can be paid

out;
 How much should be retained to support growth.

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Financial Management Decisions

Interrelationship

Investment Financing

Dividend

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Influences on Financial Strategy

•Constraint means “to limit” or “restrict” or “prevent”.

•Constraints are factors either internal or external to an

organisation that may prevent it from implementing its financial
strategies and achieving its objectives.
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Influences on Financial Strategy
Constraints include:
 Funding constraints;
 Investor relations – “keeping investors happy”;
 Agency theory – constrained by managers with
different objectives;
 Business strategy – financial strategy is not
independent of the overall business strategy;
 Regulatory bodies;
 Economic constraints; and
 International constraints.

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Influences on Financial Strategy
Funding constraints
• Companies may be hesitant to obtain
additional funding for a variety of reasons.
• The level of gearing in the company may play a
role in the funding chosen.
• Lenders may not be willing to lend further
finance to the company.
• The company may also not be able to issue
additional equity through a rights issue or new
issue of shares.

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IN PRACTISE…
What is STRATEGY? – Michael Porter

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 STRATEGY…
Read:
“Strategy lessons from the
Serengeti”

CHEETAH HYENA

WARTHOG

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Application – in real life

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Differentiator

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 70 HOUSES
25 LEGACY HOUSES
5 NEW BRANDS
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