To understand how to improve the commercial awareness in the leadership team, the FD first needs to be able to communicate effectively with them – and transport the message about what commercial means.
When one is communicating with other members of the leadership team the crispness of that communication depends on the words that are used. In fact short of using diagrams and hand gestures, which may be useful, in the end it is about the words.
“Commercial” is one of those words that is often used as a benchmark for making a decision, in other words, this or that is commercially necessary or justified. However, how often do we reflect on the meaning of the word to our organisation’s actual position and circumstances?
If you agree that an FD’s role is to ensure the long term success and financial health of the company then it follows that actions consistent with that goal are “commercial”. This means that what is or is not commercial changes over time and is not an absolute.
Here are three things that the FD can do to improve commercial awareness within the leadership:
1. Provide the leadership team with a reality check.
Whatever the current strategy is for the business, the FD can ensure that the team is aligned by producing projections showing the likely outcome of the strategy.
By engaging with the team to ensure they fully support and own the projections, the knowledge and skills of the whole team are brought to bear on the strategy, while at the same time increasing their commercial awareness. If the projection does not hit the targets expected the strategy can be reviewed.
2. Connect the activity of each department into the bottom line result for the organisation.
The idea of a budget is simple and in larger organisations something of a necessity as it enables a degree of local decision making. However, what is often lost through the budget process is a connection between how much is spent and the value being created for the organisation.
Although the value being created may exceed that which appears in a P&L (i.e. intellectual property with a 10 year life!) as a minimum one ought to be able to follow every £1 spent into the sales line at a figure greater than £1.
3. Look at decisions over a 2-3 year period when approaching the leadership of the company.
For example, in a loss making year it could be tempting, and seen as commercial, to reduce headcount.
If the reasons for the loss can be ascertained and will most likely reverse in the following year it may be more cost effective (cost of redundancy, cost of recruitment, impact on quality of change in staff) – and therefore more commercial – to maintain the current staffing.
The FD sits at the crossroads where other department heads meet with the opportunity to ensure that strong commercial decisions are made.
So, how does your FD measure up to the above? What does s/he do to increase the commercial awareness in your leadership team?
How much does s/he do to educate the rest of your leadership team about what commercial means in the wider context of your business and strategy? How often does s/he speak up to help your whole leadership team to look at what you do as a business over the mid and long term? What does s/he do to help the other members of your leadership team to connect their activities to the bottom line?
If your leadership team is commercially aware, they should be able to give you good answers to all the above questions about your FD. And if those answers are satisfactory – brilliant, well done and congratulations on having a commercial FD, who is contributing to the growth of your business, rather than just ‘counting your beans’. If not, let us know and we can help them develop to fulfil that role.