Published : 6 months ago, on 03/04/2024

Strategic Leadership Results in Better Decision-Making

Written by Robert Boyd MBA CPA CGMA FCMA

April 2024

Two distinct leadership personas dictate the direction of the business and financial worlds: strategic leaders and tactical leaders. While each is essential, strategic leaders set the course for a company’s long-term success through their vision, direction, risk management techniques, and a combination of personal and professional ethics.

Most leaders do not possess a strategic methodology from the outset. It takes time to master the tactical, Monday-through-Friday approach to getting their jobs done. These days, the development of a strategic mindset is imperative for any professional who seeks to advance into a position of C-suite financial leadership.

What is strategic leadership? 

Economic factors are the driving force in determining effective strategic leadership within the financial services sector. Advances in technology, shifting consumer behavior, and fluctuations in interest rates remain at the forefront of setting a successful financial strategy in business. Personal, business-specific factors also play an essential role. A firm grasp of the basic concepts that define a company’s goals and objectives is required for each decision-maker to determine the right strategic initiatives.

According to a Zippia study from last summer, U.S. businesses are responsible for 45 percent of global spending on leadership development, yet 77 percent of companies find leadership lacking. In the financial services sector, one study showed that companies spent an average of $1,097 on employee training, but the majority of the content is focused on compliance matters. Although companies continue spending on developing new leaders, many are unsatisfied with the results.

Strategic leadership examples 

Strategic leaders create action—change, innovation, expansion, adaptation—through their enduring vision for a financial services organization’s future direction. After accurately assessing risk tolerance and considering ethical implications, they craft a step-by-step strategy for long-term organizational financial prowess.

Conversely, tactical leaders focus on the immediate execution of this strategy. Unlike the risk-assessing, visionary strategic approach, process-driven efficiency is a hallmark of effective tactical leadership in finance. Both roles are vital, but in practice, the strategic leader sets the course while the tactical leader steers the ship.

An example of strategic leadership includes sacrificing short-term monetary gains or tolerating manageable losses in exchange for long-term viability. General Motors made history at the start of 2014, naming Mary Barra the first female CEO of an automobile manufacturer. Barra saw her early tenure marred by product recalls and Congressional inquiries, yet in 2017, she kickstarted GM’s plans for the future by acquiring a startup named Strobe, whose sole focus was driverless technology. The following year, Barra closed five manufacturing plants, resulting in some 15,000 layoffs, but responded to criticism by reinforcing her commitment to electric vehicles (EVs) as the cornerstone of GM’s future.

The short-term effect? Fluctuations aside, GM’s stock price has remained relatively unchanged since the onset of Barra’s tenure, but the CEO remains steadfast in her mission to produce affordable EVs for the marketplace. She even quantified this approach, stating a desire to: 

• Increase EV production. GM hopes to produce more than one million EVs annually in North America by 2026. 
• Overtake rivals and challenge Tesla. Berra believes GM can compete for the lead in EV sales by the end of the 2020s. 
• Focus on the market exclusively. GM’s current plan is to cease production of gasoline-powered vehicles by 2035.

Achievement of these goals is paramount to GM’s future, and the outcome will likely dictate Mary Barra’s legacy atop the automobile giant. Through tumultuous times and occasional setbacks, the pioneering CEO has kept her eyes on the prize for the duration—namely, staking GM’s future on electric vehicles. “That’s the long game we are playing, and I’m here to win,” Barra told the New York Times in 2022.

Avoid focusing on immediate gains 

Ignoring risk assessment is the biggest obstacle for financial leaders, and overspending is the most traveled route to this outcome. While businesses can’t avoid risk entirely, overextension of customer credit and careless spending are two potentially catastrophic pitfalls.

On the other hand, it is essential to maintain a proper payment cycle between payables and receivables. Many failures are rooted in paying suppliers too quickly while agreeing to extended payment terms for certain customers. Ideal payment terms dictate full compensation in a 30- to 45-day range, but extensions to 90 or even 120 days can be tempting in exchange for securing additional business. Such a financial strategy carries undue risk that can adversely affect working capital, and the organization never wants to be caught without enough cash in the bank.

From a human resources standpoint, thriving leaders surround themselves with a balance of people who share the same viewpoints and strategic mindsets, as well as those who tend to see financial services from a different perspective. At the strategic level, it is imperative for leaders to value variation.

A final cautionary point is to recognize simple human nature and maintain awareness of a tendency toward over-optimism. By default, people naturally believe they will succeed and, therefore, underemphasize or ignore data to the contrary. This speaks again to the negligence of risk assessment and the tendency to focus only on turnover and sales figures while ignoring risk until it’s too late.

Strategic leadership and risk assessment
Risk assessment is a critical component of strategic leadership. While tactical leaders can also practice risk assessment, they do so on a more day-to-day basis, building communication between departments and internal and external stakeholders. At the strategic level, leaders perform risk assessments that look years or even decades down the line. 

Every decision, investment, or acquisition inherently carries a degree of risk in financial services. But a 2022 study in the Leadership & Organization Development Journal found a “significant lack” of analysis and research into the connection between leadership and risk in highly ranked management studies. Knowing the precise appetite for risk is mandatory in conducting any strategic initiative. No single factor has a more substantial impact on growth potential.

Of course, a strategic approach to risk management means considering more than just the daily risks of running a financial services organization. The pandemic highlighted the importance of preparing for unforeseen risks and remaining adaptable at a moment’s notice. The essential components of an effective risk management assessment include:

• Identifying risks. What are the specific financial risks? This includes everything from overextension of credit to lacking liquidity levels, loss of revenue and cash flow, or resignations of critical employees.
• Assessing those risks. What degree of impact does each risk potentially have on the overall welfare of the organization? Determine which employees may be affected, positively or negatively, if a particular risk comes to fruition.
• Mitigating risks. Based on these risks, what’s the best way forward? In finance, it is better to avoid some risks entirely, while others will require leaders to step forward and assume responsibility for monitoring progress.
• Recording and implementing findings. Keeping formal records is important to avoid starting over each time and ensure that every aspect of the risk assessment process is considered.
• Consistent review of the process. This allows for easy updating of the risk assessments when necessary, finding gaps or insufficiencies in the protocol, and prioritizing adjustments in the future.

Strategic leadership dictates conducting this process cognizant of present-day risks and those that loom in the future.

Despite artificial intelligence, human capital remains imperative

Sophisticated artificial intelligence (AI) tools permit easier, more thorough risk prediction. Data-driven analysis will yield increasingly informed, dynamic, and accurate financial decision-making. The development of algorithms that translate complicated information into near-layman’s terms still requires the right people to analyze the results correctly and make informed choices. Too many companies make the mistake of believing such information is “too futuristic.” Refusing to adapt to the times, however, has spelled doom for countless organizations.

There are ethical concerns with using AI. Many business leaders fight to balance overreliance upon automation at the cost of people’s jobs with the retention of adequate human capital. Incorporating automation improves the company’s day-to-day, routine financial reporting without replacing the human element or involvement. Encourage appropriate AI and automation tools training and skill development throughout the organization.

Strategic financial decision-making 

The best strategic leaders see the big picture; they are professionals willing to sacrifice short-term gains to build enduring financial success. To accomplish this, strategic leaders in the financial sector keep one eye on the future while practicing appropriate risk management, staying ahead of industry trends, and investing equally in technology and human capital.

About the Author: 

Robert Boyd MBA CPA CGMA FCMA, is a risk and credit management expert with more than 30 years of experience in a variety of industries including banking, retail, manufacturing, and healthcare. He is a proven leader of multi-cultural global teams, streamlining operations, automating processes, and achieving record results. Robert is a Chartered Management Accountant and holds an MBA from London Metropolitan University, United Kingdom. Connect with Robert on LinkedIn.