Photo by Perawit Boonchu
To develop strategic insights, finance staff can identify strategic opportunities by asking probing questions.
How are probing questions so helpful?
Such questions shift the focus from traditional reporting to forward-looking, value-added analysis.
Questions about the business and market:
- “What are our key metrics that drive our profitability, and how do we compare to industry benchmarks?”
- “Which specific products, services, or customer segments are the most profitable, and which are actually dragging us down?”
- “What additional products or services could we offer to existing customers to increase revenue and loyalty?”
- “Are there any changes coming up in our industry (e.g., new technology, regulations, competitor moves) that could present a new opportunity or threat?”
- “How has our target customer changed over the past few years, and are we positioned to meet their evolving needs?
Questions about operations and efficiency:
- “Are our current workflows and processes efficient, or are there bottlenecks that could be streamlined through automation or new technology?”
- “What savings could we generate by outsourcing certain non-core activities without sacrificing quality or service?”
- “How can we get a better return on our significant spending areas, such as advertising or R&D, and how do we measure that return effectively?”
- “Are there any underperforming business units or unprofitable customer relationships that we should consider scaling back or eliminating to free up capital for higher-potential areas?”
Questions about growth and investment:
- “What are the major growth and value creation opportunities for the company over the next 3–5 years?”
- “What is the minimum acceptable return (e.g., IRR or NPV) for new projects, and are we consistently tracking the post-mortem performance of past investments against initial projections?”
- “What are the dominant constraints holding back our growth right now, and how might the finance team help overcome them?
- “What would we do differently if the company were an order of magnitude bigger? Does that change how we should be investing today?”
Finally, you can ask: “Which of these questions is most relevant to your current business challenge?”
Answers to questions help in developing strategic insights:
To reveal strategic insights, finance metrics must extend beyond basic profitability and liquidity measures to include indicators of long-term value creation, market position, and customer health.
Strategic finance metrics and their applications:
By moving beyond simple historical performance, companies can use the following metrics to make forward-looking decisions about resource allocation, competitive strategy, and growth initiatives:
| Metric | Strategic insight revealed | How it’s used for decision-making |
|---|---|---|
| Revenue Growth Rate | Overall business momentum and the effectiveness of sales and marketing strategies. Segment-specific growth can pinpoint which products or regions are driving or hindering expansion. | High growth indicates a successful strategy, while slowing growth may signal a need to adjust marketing or product development. Comparing year-over-year (YoY) growth helps assess a company’s momentum over time. |
| Market Share | Competitive position and brand strength within the industry. It indicates whether a company is gaining, losing, or holding its ground against competitors. | Helps inform competitive strategy, target resource allocation to specific market segments, and identify potential merger or acquisition targets. |
| Customer Lifetime Value (CLV) | The long-term profitability and health of customer relationships. A high CLV suggests strong brand loyalty and repeat business. | Allows businesses to focus resources on their most valuable customer segments, improve retention strategies, and identify opportunities for upselling. |
| Return on Invested Capital (ROIC) | How efficiently a company allocates and uses its capital to generate profits. High and consistent ROIC can signal a strong competitive advantage and efficient management. | Comparing ROIC to the company’s cost of capital (WACC) reveals whether it is creating or destroying value for shareholders. It helps guide internal investment decisions and resource allocation. |
| Free Cash Flow (FCF) | A company’s true liquidity and financial flexibility, as it represents the cash left after all operating expenses and capital investments. | Strong FCF indicates the company can reinvest in growth, pay down debt, or return value to shareholders without external financing. FCF is also a core metric in valuation models like Discounted Cash Flow (DCF). |
| Churn Rate | The rate at which customers stop doing business with a company. High churn can signal underlying issues with the product, service, or customer experience. | Tracking churn helps identify weaknesses in the business model. Decreasing the churn rate can lead to significant long-term gains in revenue and stability. |
| Customer Acquisition Cost (CAC) | The cost to acquire a new customer. A low CAC means a business is acquiring customers efficiently. | The metric is used in conjunction with LTV. The goal is to have LTV be significantly higher than CAC for sustainable growth. |
By analyzing a combination of these metrics, businesses can gain a holistic view of their performance and make informed decisions that drive long-term strategic success.
From the Coach’s Corner, see more finance tips:
Finance: Shift from Numbers-Focused to Forward-Looking — Strategic thinking in finance involves shifting from a reactive, numbers-focused mindset to a proactive, forward-looking one. Here’s how.
Finance: How to Streamline a CFO’s Invoice-Approval Checklist — As a financial steward, it’s increasingly important for a chief financial officer to streamline processes with automation and a structured approval hierarchy.
Entrepreneur, Do You Want Tools for Maximum Profits? — All entrepreneurs absolutely have the same internal and external challenges that impede business profits. Here are solutions.
Effective Financial Management and Control — For successful financial controls, there are four key elements.
Tips for a Strong Executive Summary in Your Business Plan — Unsuccessful business plans often have executive summaries that either contain unrealistic goals or projections, or verbose language.
“Some days I’m the Chief Finance Officer; other days I’m the Chief Fix-It Officer.”
-Amy Hood
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