CFO's play a critical role in forming "Business Strategy"

Disruption and innovation are at the heart of the business environment. Whole industries are being transformed through emerging technologies, automating commoditised products and services.

Within this, it’s important to recognise there are two types of disruption: destructive disruption and creative. On the destructive side are businesses such as Uber, which has almost succeeded in making the traditional taxi business model redundant, at great financial cost to those holding traditional taxi licenses. Conversely, creative disruption is producing exciting new business models and services that are additive and create new demand, in new markets, and even new industries. The mentoring and executive coaching industries are examples. These are new fields that are not taking market share away from incumbents. Rather, they are adding to them.

One way to take a creative approach to disruption is by pursuing a blue ocean strategy. Let’s take a look at what this is. Some businesses succeed no matter where they are located and through every market cycle. They are not successful simply due to a charismatic leader or as a result of their business culture. Rather, they are winners due to the strategic decisions and actions they take.

That's the fundamental premise of the blue ocean strategy. It shuns copycat business models and fighting for market share in a bloody, competitive market filled with a few winners and many losers – known as a red ocean. Rather, businesses that pursue a blue ocean strategy open up new markets and industries, in which there is minimal or no competition.

Like any successful strategy, a blue ocean strategy has three key factors: customer value, a strong profit proposition, and a strong people proposition. A business that is able to successfully execute a blue ocean strategy delivers real value for customers, is commercially viable and has the right people working for it.

Dentist loyalty program Smile.com.au is an example of a business that has pursued a blue ocean strategy to produce creative disruption in the dental industry. It has almost a million members, many of whom don’t have health insurance. Rather, Smile.com.au is a health insurance proxy because it gives patients discounts on a service they need in an industry that aims to engender loyalty from customers. Smile.com.au is not stealing customers from health insurance businesses, it has created an entirely new market from non-customers of the health insurance industry.

Another example is health insurance and investment company Australian Unity’s business, Remedy Healthcare, which provides a case management and advisory service to people who have medical conditions, helping them to navigate the healthcare system. The service has also been white labelled for a number of other, generally smaller health insurers. Remedy isn’t taking anything away from health care or health insurance providers, rather it is augmenting what they do and providing new value to their corporate customers, partners and end users.

Dingo Technologies provides a third example. For many years the company developed predictive maintenance software for mining companies to help them better run their equipment. But clients were not using the software in the optimal way, leading to sub-standard performance from their equipment. So, Dingo turned its offering on its head. Rather than simply sell the software to miners, Dingo offered the option of crunching the numbers themselves and simply selling data and reports that the software produced, allowing miners to operate their equipment to its full potential and leading to massive cost savings and performance improvements.

The CFO's Critical Role

The C-Suite and importantly CFOs have a critical role to play in this given their responsibility to help organisations pursue new markets, products and services, through the allocation of finite resources, through strategic planning and risk management. It’s worth noting they still need to keep an eye on competitors, but the idea is not to simply benchmark the business against competitors and replicate what they are doing, because the end result is a head-to-head death spiral. Instead, think why people turn to the alternatives and substitutes in your market and how your product or service needs to change to win back those markets.

It’s easy for firms to balk at this – after all moving into new areas carries risk. But in a disruptive environment it’s riskier to keep doing the same things than to shift. The fact is, the CFO is the custodian of risk management. So, while a blue ocean approach cuts across marketing, sales, production, distribution and HR, a whole-of-business risk management approach is at its core and the CFO must drive this.

As a result, the CFO has a vital role to play bringing together different views across the organisation and identifying many different steps the business can take to help it follow a blue ocean approach. This also requires careful financial management including capital investment and redirecting existing resources and CFOs must be the guardian of this.

Additionally, CFOs must work alongside other members of the senior management team, especially the CEO, to successfully execute a blue ocean strategy. It’s up to the CEO to drive the culture that supports a blue ocean strategy. But the CEO and CFO should work alongside each other, to determine how much money needs to be put aside to fund innovation and growth programs.

Ultimately, a blue ocean strategy is another tool in the strategic planning process. It doesn’t entirely replace other strategic planning tools, rather it augments them. But in the current market climate, it’s a technique few if any senior finance leaders can avoid.

CFO Accelerator and Blue Ocean Strategy Australia are again holding a number of Blue Ocean Strategy Workshop in Brisbane, Melbourne, Sydney and Auckland.

Watch the below video for further information or go here.

?CFO Accelerator & Blue Ocean Strategy Australia are partnering to deliver Blue Ocean Strategy Masterclasses across Australia and New Zealand.

?Building real CFO Capability - Blue Ocean Strategy Masterclasses in Melbourne, Sydney, Brisbane and Auckland.

For further details on Australia based workshops go here.

For further details on New Zealand (Auckland) based workshops go here.