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Ethical Aspects Of Strategic Financial Management Pdf

What Is Strategic Financial Management?

Strategic management is the locus for the most far-reaching decisions (in scope and time) that any organisation makes, hence one could argue that it is in this sphere that ethics also has its. Legal, Ethical, and Safety Issues. Difficult situations that involve ethical dilemmas. It is the responsibility of the human. HR management must also train.

Strategic financial management means not only managing a company's finances but managing them with the intention to succeed—that is, to attain the company's goals and objectives and maximize shareholder value over time. However, before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals.

Strategic financial management is about creating profit for the business and ensuring an acceptable return on investment (ROI). Financial management is accomplished through business financial plans, setting up financial controls, and financial decision making.

[Important: 'Strategic' management focuses on long-term success and 'tactical' management relates to short-term positioning.]

Understanding Strategic Financial Management

The Operative Word: Strategic

Descargar matlab 2012 full portable bed. Financial management itself involves understanding and properly controlling, allocating, and obtaining a company's assets and liabilities, including monitoring operational financing items like expenditures, revenues, accounts receivable and payable, cash flow, and profitability.

Strategic financial management encompasses all of the above plus continuous evaluating, planning, and adjusting to keep the company focused and on track toward long-term goals. When a company is managing strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term vision.

Strategic Versus Tactical Financial Management

The term 'strategic' refers to financial management practices that are focused on long-term success, as opposed to 'tactical' management decisions, which relate to short-term positioning. If a company is being strategic instead of tactical, then it makes financial decisions based on what it thinks would achieve results ultimately—that is, in the future; which implies that to realize those results, a firm sometimes must tolerate losses in the present.

When Strategic Management Is Effective

Part of effective strategic financial management thus may involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through closing facilities or reducing staff, thereby decreasing its operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but which position the company better to succeed in the long term.

These short-term versus long-term tradeoffs often need to be made with various stakeholders in mind. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions.

Key Takeaways

Nature And Scope Of Strategic Financial Management

  • Strategic financial management is about creating profit for the business.
  • A financial plan that is strategic focuses on long-term gain.
  • Strategic financial planning varies by company, industry, and sector.

The Elements of Strategic Financial Management

A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and using them efficiently. Here a firm needs to be creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals. However, some of the more common elements of strategic financial management could include the following.

Planning

  • Define objectives precisely.
  • Identify and quantify available and potential resources.
  • Write a specific business financial plan.

Budgeting

  • Help the company function with financial efficiency, and reduced waste.
  • Identify areas that incur the most operating costs, or exceed budgeted cost.
  • Ensure sufficient liquidity to cover operating expenses without tapping external resources.
  • Uncover areas where a firm may invest earnings to achieve goals more effectively.

Managing and Assessing Risk

  • Identify, analyze, and mitigate uncertainty in investment decisions.
  • Evaluate the potential for financial exposure; examine capital expenditures (CapEx) and workplace policies.
  • Employ risk metrics such as standard deviation, and value-at-risk (VaR) strategies.

Establishing Ongoing Procedures

  • Collect and analyze data.
  • Make financial decisions that are consistent.
  • Track and analyze variance—that is, differences between budgeted and actual results.
  • Identify problems and take appropriate corrective actions.

Examples of Strategies Based on Industry

Just as financial management strategies will vary from company to company, they also can differ according to industry and sector.

Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing gross revenue within the next 12 months.

On the other hand, companies in slow-growing industries—like sugar manufacturing or coal-power production—could choose objectives that focus on protecting their assets and managing expenses, such as reducing administrative costs by a certain percentage.

A version of this article appeared in the Autumn 2016 issue of strategy+business.

Most companies have leaders with the strong operational skills needed to maintain the status quo. But they face a critical deficit: They lack people in positions of power with the know-how, experience, and confidence required to tackle what management scientists call “wicked problems.” Such problems can’t be solved by a single command, they have causes that seem incomprehensible and solutions that seem uncertain, and they often require companies to transform the way they do business. Every enterprise faces these kinds of challenges today.

A 2015 PwC study of 6,000 senior executives, conducted using a research methodology developed by David Rooke of Harthill Consulting and William Torbert of Boston University, revealed just how pervasive this shortfall is. Respondents were asked a series of open-ended questions; their answers revealed their leadership preferences, which were then analyzed to determine which types of leaders were most prominent. Only 8 percent of the respondents turned out to be strategic leaders, or those effective at leading transformations (Rooke and Torbert refer to them as “strategist” leaders).

Find Your Strategic Leaders

Strategic Financial Management Group

Most companies lack people in positions of power with the experience and confidence required to challenge the status quo.

Ethical Aspects Of Strategic Financial Management Pdf Format

The study suggests that strategic leaders are more likely to be women (10 percent of the female respondents were categorized this way, versus 7 percent of the men), and the number of strategic leaders increases with age (the highest proportion of strategic leaders was among respondents age 45 and above). These leaders tend to have several common personality traits: They can challenge the prevailing view without provoking outrage or cynicism; they can act on the big and small pictures at the same time, and change course if their chosen path turns out to be incorrect; and they lead with inquiry as well as advocacy, and with engagement as well as command, operating all the while from a deeply held humility and respect for others.

Definition Of Strategic Management Pdf

It may seem disheartening that such a small percentage of senior leaders can operate this way. The trend over time is almost as bad. When the same survey was conducted in 2005, only 7 percent of respondents were identified as strategic leaders. In other words, in the course of a transformative decade marked by the collision of technological breakthroughs, financial crises, demographic shifts, and other major global forces, the leadership needle barely moved.

Given the small percentage of senior leadership equipped to manage large-scale transformation, companies are often forced to bring in leaders from outside. But as we’ve observed in countless organizations over the years, significant change in a company is more likely to succeed if it is led from within. Perhaps most alarming, the leadership gap is typically hidden from view. No one recognizes that the company’s top executives aren’t acting strategically, or people do realize it, but no one is willing to call attention to the problem. The gap thus comes to light only when a company faces a major challenge to its traditional way of doing business. It’s in the do-or-die moments, when companies need a strategic leader most, that they discover the current leadership isn’t up to the task.

Operational Aspects Of Management

A study of 6,000 senior executives revealed that only 8 percent turned out to be strategic leaders.

Fortunately, companies can build the capacity for strategic leadership. It starts with recognizing that your organization undoubtedly already has emerging strategic leaders within it whose skills are being overlooked or even stifled. The problem can be traced back to how organizations traditionally promote and develop their leaders. In many companies, the individuals who make their way to the top of the hierarchy do so by demonstrating superlative performance, persistent ambition, and the ability to solve the problems of the moment. These are valuable traits, but they are not the skills of a strategic leader.

It’s in the do-or-die moments that companies discover the current leadership isn’t up to the task.

The following 10 principles can help unlock the potential strategic leadership in your enterprise. These principles represent a combination of organizational systems and individual capabilities — the hardware and software of transformation. You may have already adopted some of these tenets, and think that’s enough. But only when you implement all of them together, as a single system, will they enable you to attract, develop, and retain the strategic leaders who’ve eluded you thus far.

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Systems and Structures

Ethical Issues In Financial Management

The first three principles of strategic leadership involve nontraditional but highly effective approaches to decision making, transparency, and innovation.

1. Distribute responsibility. Strategic leaders gain their skill through practice, and practice requires a fair amount of autonomy. Top leaders should push power downward, across the organization, empowering people at all levels to make decisions. Distribution of responsibility gives potential strategic leaders the opportunity to see what happens when they take risks. It also increases the collective intelligence, adaptability, and resilience of the organization over time, by harnessing the wisdom of those outside the traditional decision-making hierarchy.

Top leaders should push power downward, empowering people at all levels to make decisions.

In an oil refinery on the U.S. West Coast, a machine malfunction in a treatment plant was going to cause a three-week shutdown. Ordinarily, no one would have questioned the decision to close, but the company had recently instituted a policy of distributed responsibility. One plant operator spoke up with a possible solution. She had known for years that there was a better way to manage the refinery’s technology, but she hadn’t said anything because she had felt no ownership. The engineers disputed her idea at first, but the operator stood her ground. The foreman was convinced, and in the end, the refinery did not lose a single hour of production.

When individuals like the plant operator are given responsibility and authority, they gain more confidence and skill. And when opportunities to make a difference are common throughout an organization, a “can-do” proficiency becomes part of its identity. At Buurtzorg, a Dutch neighborhood nursing organization, most decisions are made by autonomous, leaderless teams of up to a dozen nurses. A small central management team supports and coaches the frontline nurses; there is no other middle management. The company achieves the highest client satisfaction levels of all community nursing delivery in the Netherlands, at only 70 percent of the usual cost. Patients stay in care half as long, heal faster, and become more autonomous themselves. And the nurses gain skills not just for leading their part of the enterprise, but in community leadership as well.

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2. Be honest and open about information. The management structure traditionally adopted by large organizations evolved from the military, and was specifically designed to limit the flow of information. In this model, information truly equals power. The trouble is, when information is released to specific individuals only on a need-to-know basis, people have to make decisions in the dark. They do not know what factors are significant to the strategy of the enterprise; they have to guess. And it can be hard to guess right when you are not encouraged to understand the bigger picture or to question information that comes your way. Moreover, when people lack information, it undermines their confidence in challenging a leader or proposing an idea that differs from that of their leader.

Some competitive secrets (for example, about products under development) may need to remain hidden, but employees need a broad base of information if they are to become strategic leaders. That is one of the principles behind “open-book management,” the systematic sharing of information about the nature of the enterprise. Among the companies that use this practice are Southwest Airlines, Harley-Davidson, and Whole Foods Market, which have all enjoyed sustained growth after adopting explicit practices of transparency.

Aspects

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