In this scientific article various principles of the financial strategy development are aggregated.
Key words: financial strategy, principles, development.
The development of the financial strategy for a corporation is based on a number of core principles that provide a sufficient level of preparation for making strategic financial decisions. The combination of these principles makes it possible to include the most important elements in the financial strategy, as well as to develop it in accordance with generally recognized theoretical requirements and real business conditions.
These principles include perspective, which is presumed in the orientation towards future results in the long-term. The priority principle reflects the great influence of financial strategy on the tactical behavior of the firm. An equally important aspect of a financial strategy is its feasibility in real market conditions .
Since the financial strategy is implemented in stages (the achievement of the long-term goals is carried out through the implementation of middle-term and short-term ones), the iteration principle is also distinguished.
When developing a financial strategy, the group of analysts should consider the complex principle of its construction: in addition to direct strategic development, preliminary and post-analysis of both external and internal environment in which it is being implemented should be carried out, and the possibility of a prompt response should be ensured in case of emerging changes. Financial strategy development should also be continuously monitored (which is also a fundamental principle in developing this type of strategy). Most often, special attention is paid to monitoring the economic environment (carried out by scanning macro- and microeconomic indicators), the level of scientific and technological development of the economy (assessing scientific and technological progress, tracking the emergence of new products and benchmarking of know-how) and the political situation, which is of prior importance in developing countries.
The selectivity principle also plays crucial role in the development of financial strategy. It helps managers to prioritize directions for development and to find the best niche for the company in the market. It is also necessary not to forget about the principle of strategic competition, which is based on the fact that every company in the market (if the market is not completely monopolized) is subject to the influence of competitors, therefore, it is necessary to constantly assess the risk of certain decisions, as well as to remember about the limited resources in the corporation, which can be used at this particular moment .
Despite the wide range of principles already considered, the basic ones are a number of still unnamed ones. Their consideration and utilization is an important direction of the strategic process of the corporation. Among the principles of developing a financial strategy, the following are also distinguished :
— the corporation is viewed as an open system;
— the overall, functional and corporate strategies of the corporation are taken into consideration when developing a financial strategy;
— the financial strategy should be focused on the entrepreneurial style of strategic financial management;
— the financial strategy should be flexible;
— it should be focused on the main areas of development;
— it should provide an alternative choice of strategic financial decisions;
— it should ensure constant interconnection of the results of scientific and technological progress and financial activities of the company;
— it should be in line with the organizational structure and organizational culture;
— professionalism of financial managers is of prior importance in the development and implementation of financial strategy;
— it should take into account financial and other risks when creating and making strategic decisions.
For a proper understanding, these principles are described in more detail below.
Consideration of the company from the point of view that it is an open socio-economic system capable of self-organization means that any corporation exists in a dynamically developing and changing environment that has a significant impact on its activities including the development of a financial strategy.
The principle of taking into account the general, functional and corporate strategies of the company means that the financial strategy, despite its exceptional importance, is subordinate in relation to the corporate strategy and it also requires strict alignment with the overall strategic goals and guidelines for operating and investment activities. In this regard, the financial strategy is one of the most important factors that ensure the effective development of the corporation in accordance with the chain of other strategies. Despite this, the financial strategy, in turn, has a reverse effect on the process of strategic development of the organization's operating and investment activities. High rates of implementation, the need to occupy a larger market share or modernization of the production process in any case are associated, first of all, with an increase in costs. The aims and goals of the corporation and the market environment often require the firm to further optimize its financial activities, which becomes possible only with the modification of the financial strategy. The strategic goals of operating activities are not always achievable with the available amount of financial resources (planned within the financial strategy), and attracting new ones is not possible or expedient, so managers have to make adjustments in operating and investment activities .
The principle of focusing on the entrepreneurial style of strategic financial management is expressed in an active search for effective management decisions in all areas and forms of financial activity. In addition, the principle of flexibility is also vital. It consists in the ability to adapt the financial strategy to specific market conditions.
Identification of the dominant areas of strategic financial development allows the corporation to determine the most important spheres and to stay concentrated on the most necessary measures to achieve the strategic goals of financial management, providing an increase in the market value of the company in the long-term perspective.
The principle of providing alternatives to strategic financial decision-making assumes that in every situation arising in the market managers have a whole range of possible solutions to the problem. Their functions, respectively, include the selection of the best initiatives based on the adopted financial strategy and their direct implementation. Alternativeness is inherent in various components of a strategic financial set: goals, financial policy, the process of financial resources’ formation and even style of financial management.
Thus, in this scientific research various principles of the financial strategy development are aggregated and most of them should be taken into account by the strategic managers in big TNC and SMEs while developing a financial strategy.
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