What is strategy? What does financial strategy mean?
This chapter addresses the task of defining financial strategy, in the process clarifying usage of the many terms associated with 'strategy' and 'strategic'. Strategy and strategic are much-overused words, as is evidenced by 'winning strategy', 'strategic thinker', 'strategic appointment', 'strategic direction', 'strategic supplier' and so on.
When we hear the word 'strategy' we run into a range of meanings, quite incorrect usage, vagueness and misunderstanding. At the outset we need to be clear as to what the words 'financial' and 'strategy' really mean; what is meant by the individual words and therefore the term 'financial strategy'. This in turn leads us to pose the question: 'Why be in business?'
Content, order and logic of this chapter
Within this chapter we will cover the following topics:
- Definitions of 'financial', 'strategy' and 'strategic'
- Further strategy-related definitions
- What is business strategy?
- What is the objective of financial strategy?
- Why be in business?
Order and logic
Words are used loosely and at times given perverted meanings and thus we should be careful to define what we mean by 'financial' and 'strategy' and how these words relate to business strategies and other common business terminology. This then leads to identifying what the objectives of financial strategies may be and whether there is the one objective.
Definitions of 'financial', 'strategy' and 'strategic'
- pertaining or relating to money matters;
- pertaining to those commonly engaged in dealing with money;
- relating to finance or financiers;
- the science of the management of money and other assets.
There should be no misunderstanding or ambiguity with this word or its usage, and the last definition has an interesting connotation, that of financial activities being a management science.
- a plan of action designed to achieve a long-term or overall aim;
- the art of planning and directing overall military operations and movements in a war or battle.
And the certainly overused word:
- highly important to an intended objective;
- essential to the effective conduct of war.
It is the aura of the second definition (along with many other militaristic words such as 'tactics') that business people, academics and consultants have latched onto to give executives and managers a commanding image as the field marshal, the general, the 'strategist'! Maybe some CEOs see themselves as at war?
A strategy is a plan, a means of achieving an objective - a strategy is not an objective. Businesses often think that their strategy is the objective or goal. 'Strategy' describes a broad perspective on how resources may be used to achieve goals or objectives.
Financial strategy may be defined as the science of the management of assets and liabilities to achieve an intended objective. The management may be of an operational nature or a structural nature or a combination, as explained below.