The Strategic Finance Impact Curve

Every Finance team aspires to be strategic.

But few achieve it – why not?

Becoming strategic isn’t a switch you flip, it’s a climb. Like Maslow’s hierarchy of needs, Finance has its own: you must first master forecasting, reporting, and operations before influencing strategy at a higher level.

Day-to-day demands are growing faster than ever, and with technological advances, leaders expect immediate results.

To help teams navigate the journey from tactical to strategic, we’ve introduced a Strategic Finance Impact Curve framework.

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The Framework

This framework is based on real-world experience, including the journey of several OVG members at Sunrun, which grew from less than $500M in revenue in 2016 to over $1.5B in 2021 to become the clear leader in residential solar.

In only a couple of years, our Finance team:

• Cut forecasting cycle times from a quarter to <2 weeks (including close)
• Solved sales forecasting challenges across direct, retail, and partner channels
• Connected sales and operations plans for the first time
• Aligned the business on volume and contribution margin targets
• Involved every function in planning, hitting internal and external targets (volume, cash generation, NPV)
• Scaled from ~20 to ~8 (while painful, the truest definition of scale)
• Became facilitators and influencers for strategic decision-making

These outcomes are what we strive to help other teams achieve.

The framework consists of three stages:

• Stage 1: Forecasting (and Reporting): tactical activities such as monthly rolling forecasts, management reporting, variance analysis, and ad hoc reporting. This stage relies heavily on data and technology.
• Stage 2: Operating: more operational activities such as annual planning, budget accountability, and process improvement, all of which directly impact business operations. More oriented around business process and horizontal relationships
• Stage 3: Strategizing: strategic activities such as BOD-level storytelling, driving S&OP, business cases, and M&A. This stage is focused on driving long-term enterprise value with the right combination of growth, profitability, and capital and emphasizes soft skills to influence up to the top.

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Stage 1: Forecasting (and Reporting)

Most Finance teams know how to handle this first step, especially with so many good FP&A software solutions on the market.

Nonetheless, many teams get stuck in a vicious cycle at this stage. I’ve experienced this first-hand and observed it many times. The cycle usually goes something like this:

• Business grows -> workload increases
• Add headcount -> temporary relief
• Implement system -> some relief along with higher expectations,
• More unaddressed questions -> more models, reports, and data, more resources
• More models, reports, complexity -> frustration and burnout

We see this scenario over and over. Finance teams are most comfortable in Stage 1, software and consulting companies make the most money in Stage 1, executives are only focused on Stage 3, and Stage 2 is either overlooked or not prioritized. Teams continue to over-index on Stage 1 thinking it will take them to Stage 3 and never make the leap.

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Stage 2: Operating

Stage 2 is the critical bridge between Stage 1 and Stage 3.

This is where your team goes beyond the financial story to the operational story.

From output metrics to input metrics. From data to relationships. From financials to activities.

This is operating in a financial sense, understanding the ins-and-outs of business operations and translating them directly back to financial and economic outcomes.

In Stage 2, the your outputs shift dramatically from a GAAP 3-statement model view of the world to a distinct operating model view of the world. This business-focused model starts with customers and volume and represents more of a value- and cash-centric view of the world instead of an accounting-centric view. For example, commissions are represented when they are earned, not amortized, and revenue may be replaced by lifetime value. Financials are assigned by channel, product, region, as needed with agreement from the business.

The operating model must still bridge clearly to GAAP net income and free cash flow to tie to the financial story, which requires deep accounting knowledge and alignment. It must also be built to clearly demonstrate the impact of business operations on enterprise value via growth, profitability, and capital. This is the glue that bridges from the 30,000-foot view of the business to what is happening in the trenches.

Though the above may seem straightforward, this stage is practically challenging for several reasons:

• More ambiguity: it is shades of gray instead of black-and-white like the financial story. You can’t only rely only on quantitative data, you must incorporate qualitative data and be able to judge the credibility of qualitative data.
• Internal politics: it requires working with other teams who have their own agendas, balancing supporting others with holding them accountable. It requires investing in relationships. It took us nearly two years of persuasion to get operations to buy into a unified volume plan with sales.
• Functional silos: It requires thinking outside of normal functional boundaries. If Sales Operations owns bookings, FP&A owns revenue, and they operate in silos, this stage cannot be accomplished. This case is equivalent to Finance only forecasting depreciation with no influence over capital projects.
• Technical silos: similarly, it requires thinking outside of FP&A-focused tools, expanding to more of a broad BI scope. Especially with AI lowering technical barriers, your team needs to be more tech-savvy than ever.

• Team game: it requires execution by not just the leader or a few specialists, but everyone on the team. The operational story is only as strong as its weakest link. It doesn’t matter if sales and marketing are crushing if supply chain is faltering.
• No one-size-fits-all: it is unique to every company and team – there is no single playbook or technology solution that will solve your specific challenges out of the box.
• Continuous effort: it’s not one project or implementation, but a series of initiatives and efforts that must be strategically prioritized and largely internally-driven. The effort associated with this stage is much larger than Stage 1 or Stage 3.

We focus mainly on Stage 2 at OVG because of the level of difficulty, higher technical needs, and additional effort required to get over the hump to Stage 3.

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Stage 3: Strategizing

Strategic Finance is the pinnacle that everyone wants to achieve, but it is earned internally, not granted.

At Sunrun, this role manifested in several ways:

• Facilitating weekly S&OP meetings with the C-Suite and their respective Finance business partners
• Driving monthly executive reviews and BOD deck preparation across all functions
• Business partners engaging with us preemptively when key decisions needed to be made

Once Stage 1 and Stage 2 are firmly in place, strategic partnership comes naturally. Your team will have the data, context, credibility, and relationships needed to shape outcomes, not just report on them.

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Key Takeaways

Advancing along the impact curve is a difficult journey but extremely fulfilling. Here are a few takeaways:

• Prioritize with the end in mind: growth, profitability, and capital must guide every effort, and leadership is responsible for imparting this mindset and high-level prioritization to every level.
• Find dual threat talent: strategic thinks who aren’t afraid or above tactical execution are essential to building the bridge between Stage 1 and Stage 2. Antone without a strategic mindset or who only delegates tactical work will be a bottleneck.
• Don’t try to do everything at once: it’s easy to get paralyzed when you know you need everything but have nothing. Go to where the pain is, not what is most accessible.

If you have navigated or are navigating this journey, we'd love to hear your story!

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