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Relationship Between Finance and Strategy

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Relationship between Finance and Strategy

• Finance helps align Strategy to reality, while from another angle, Financial decisions need to be aligned to Strategy and to an organization’s strategic objectives: o Finance helps measure the effectiveness of strategy by giving it metrics through which it can be evaluated on. These metrics help determine which strategy can create the most value for a certain organization; o Finance and Strategy work in tandem and in continuous cycles. Strategy is used to formulate and identify long term goals and means of achieving such goals. Finance goes on to align strategy with reality, providing metrics to evaluate its effectiveness; o Finance plays part in the Strategic decision making, as financing choices and capital raising strategies (debt vs. equity) will impact the value and the image of the firm, this is a topic of concern to the decision makers. • Both Finance and Strategy are concerned with value creation for their stakeholders whether it is the shareholders, the employees, the management etc. Strategy from a qualitative point-of-view (for instance by finding the drivers of competitive advantage for the stockholders and devising means to exert some pressure on those drivers in order to create value). While Finance is quantitative, meaning that it is a measure of the created value resulting from the strategy. This is more about determining the exact bottom line. • In a nutshell, if Strategy is about the vision that plans to create the most value, Finance is about the actions (expenditures and profits making) to realize such vision.

Choice of company: EasyJet plc.

Background
EasyJet is a low-cost British airline company which serves on 500 routes between 118 European, North African, and West Asian airports. Established in 1995…...

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