The Importance of Developing Market Knowledge as a CFO

The Commercial Mindset competency contains the following five skills:

1. Understand the Business: Learn how the business works, its previous journey, the politics and why things are done in a certain way.?
2. Develop Market Knowledge: Build knowledge of rival products, competitor activities, market trends, new entrants and disruptors.?
3. Tell the Financial Story: Link company data trends to commercial activities and demonstrate what is driving the financials.?
4. Drive Growth: Help to identify new sources of growth such as products, propositions, expansion into new markets and M&A.?
5. Maximize Shareholder Value: Balance earnings, versus growth, identify value drivers, respond to market threats and sell non-core assets.?

Today's Newsletter will focus on Skill #2: Develop Market Knowledge

CFOs are in a unique position to provide critical insights into how their company can compete in the market and deliver its full potential. You already have a deep understanding of the financial health of your company and robust knowledge of its performance data. By combining this with strong market knowledge, you will be ideally placed to provide valuable input into many strategic decisions, including where to allocate capital, how to price products, and which customers to target.

Market knowledge includes understanding the latest industry trends, the size and growth potential of different markets, as well as the competitive landscape. You must be able to anticipate future changes in the marketplace and understand how your organization stacks up against its competitors.

Conversely, if you lack market knowledge, then you may make poor decisions regarding investments and company direction, leading to financial problems and even bankruptcy. You may struggle to negotiate favourable deals with suppliers and customers, causing the company to miss out on revenue opportunities or pay too much for goods and services.

Traditionally, CFOs focused purely on financial information. However, your stakeholders, including customers and investors, will look at your wider business and will not just focus on the numbers. Non-financial information covers a range of key value drivers that highlight the broader context of how you are doing and what you are trying to achieve.

Many business decisions will be based upon your non-financial information, in addition to the financial information generated by your finance function. For example, you will be missing the bigger picture if you are fully focused on a product margin but fail to spot that a major competitor is about to launch a rival product that will significantly reduce future demand for your existing product.

There are many ways that CFOs can build strong market knowledge. You will already be surrounded by people, content and data that contain valuable insights and opinions. You need to know what sources of information are available and where to find them.

The following diagram outlines the sources of information that are readily available to most CFOs:

Here are five ways to develop your market knowledge from these sources of information:

1. Ask the right questions: Ensure you get accurate information from your sources.
2. Use multiple sources: Get a well-rounded view from reports, websites and industry experts.
3. Keep up with current trends: Attend industry events, subscribe to bulletins and talk to peers.
4. Analyse data: Scrutinize data, such as benchmarking pricing metrics against competitors.
5. Internal discussions: Obtain valuable insights from department heads and leadership teams.

It is important that CFOs make the most of this readily available market knowledge to guide strategic decision-making. This includes understanding the trends, risks and opportunities that could impact your business. It also means being aware of your competitors' strategies and how you can stay one step ahead.

Interested in developing your CFO skills further? Attend one of our Future CFO preview events: https://future-cfo-program-preview-events.heysummit.com/