CFO Gameboard: Does your company have a financial steering model?

In this article, you can learn more about how the financial steering model creates measurable value for your organisation ‒ and explore exactly what the model contains. The article is part of a series in which we present a range of financial focus areas through our analysis tool CFO Gameboard. 

When we facilitate CFO Gameboard sessions, we often observe the same thing when attention turns to the first item in the third column of the gameboard – the Financial Steering Model: the question “How do you manage your finances?” hangs in the air.  

This is because there is often uncertainty about what the financial steering model actually and concretely includes, and how it can be used to drive the financial performance the business is aiming for.  

Imagine a car without a steering wheel, accelerator or brakes, but with a fully equipped dashboard. You can see everything: speed, mileage, revs, fuel consumption. But you cannot change gear, brake, accelerate or steer. It is an uncomfortable journey. You have all the information you need – but you are not the driver. 

It is a challenge many companies recognise: plenty of information and data, but limited ability to translate them into action. The result is often that you can report on the figures, but struggle to influence performance in the desired direction.  

And this is where the financial steering model comes into the picture. 

The model is divided into four layers that build on one another. Across these four layers, there are 16 focus areas in total, which form the foundation for scalable and robust financial management.  

Not all 16 points are equally important for every business. For some, the financial steering model may consist of 10 or 12 points, while businesses of a different size and nature will need to address all 16 – and may even identify additional points themselves if this proves relevant through dialogue. 

In the following, we will touch on all 16 points to provide an overview of the model’s content. 

The first layer defines the fundamental purpose and principles of financial steering in the organisation. It establishes a shared understanding of what Finance is there to do, how the business creates value, and which financial goals are non-negotiable.  

The three components in layer 1:  

• Purpose of Finance – the purpose and mandate of the finance function 
• Financial Narrative – how value is created 
• Financial Priorities – overarching and non-negotiable financial goals. 

Before you can design a financial steering model, you must clarify the role Finance is expected to play in the organisation. Is it primarily a control and compliance function or an active business partner shaping commercial decisions? With a clear purpose, you can align expectations with the rest of the organisation and create a solid basis for prioritisation. Next, you need to describe the mechanisms that drive earnings, margin, capital tie-up and risk. This narrative forms the basis for what is measured, how performance is defined, and which decisions are considered financially rational. The point is not where money is earned organisationally, but how value is actually created. 

Finally, the few overarching and non-negotiable financial priorities must be set. Without a clear Value Agenda, you risk different parts of the organisation optimising against different parameters – and therefore pulling in different directions. 

The second layer describes the company’s underlying financial design: the structural choices that define the framework for performance and often carry long-term consequences.  

The four components in layer 2:  

• Financial Architecture – capital structure and risk balance 
• Structure – Financial accountability and measurement 
• Internal Trade & Pricing Principles – internal rules for trading and pricing  
• Asset Strategy & Footprint – asset choices and capital tie-up. 

Financial architecture is about two things: how the business is financed through the balance between equity and debt, and how financial, operational and commercial risks are managed. This mix has a major impact on areas such as return requirements, room for manoeuvre and resilience, and an unsuitable architecture can create either unnecessary risk or excessive caution in decision-making.  

The structure must define financial accountability and how performance is measured. Who is accountable for what? What are profit centres, cost centres and support functions? Questions like these are often overlooked in a financial steering model. An unclear structure can lead to blurred accountability and weak governance across the organisation.  

The internal rules for trading in both products and services, pricing and principles for cost allocation and distribution must also be defined. This is not only about transfer pricing and tax, but about avoiding profit illusions, where earnings are created internally rather than in the market. These “internal markets” should support decision-making and steering, not distort them.  

Finally, asset placement and capital tie-up must be clarified. Which assets does the company own, or is committed to, and where are they located? Major asset choices tie up capital and set limits on strategic options.  

In the third layer, the company’s objectives and architecture must be translated into concrete choices in practice. This is where you determine whether the business can actively prioritise, reallocate and adjust – or merely explain results in hindsight.

The five components in layer 3:  

• Capacity Utilisation – Optimising earnings by making the best use of constrained capacity  
• Capital Allocation – Deliberate investment choices and trade-offs 
• Governance – Decision rights, discipline and investment requirements  
• Planning Processes – Planning that matches the rhythm of the business  
• Strategic Reporting – Decision-supporting and commercial transparency. 

At its core, all financial steering is about maximising constrained capacity. Value creation is determined by what that constrained capacity is used for – and if you do not know where your bottleneck is, you cannot maximise financial performance.  

Capital allocation describes how the business chooses between investments, growth initiatives and divestments. Strategy only becomes real when it also includes deliberate choices not to act, and the key is to concentrate resources where they create the greatest long-term value for the organisation.  

Governance defines decision rights, discipline and investment requirements. A useful rule of thumb is that too little governance leads to poor decisions, while too much governance leads to slow decisions.  

In planning terms, different parts of the business require different planning horizons – from annual plans to quarterly cycles to weekly planning. The important thing is to establish a rhythm that matches your financial decisions.  

Strategic reporting must make performance visible across the dimensions that matter for prioritisation – regardless of organisational structure. Is the strategy visible in the reporting? That shows where value is created and where it is lost.  

The fourth and final layer embeds the company’s financial steering model in day-to-day decisions and behaviours. This is where the model is tested and must prove itself in practice.  

The four components in layer 4:  

• Operational Information & Guidelines – operational insight and clear guidelines  
• Technology & Data – master data, definitions and calculation logic 
• Rewards – incentives and reward structures 
• Behaviours – financial culture and accountable behaviour.

Frontline managers must have access to the right information as well as clear guidelines on their mandate, because without operational insight they cannot make the decisions expected of them. We often see companies focus reporting upwards towards the board, while forgetting that money is earned in the frontline – not in the boardroom.   

Technology & Data is about ensuring a stable data foundation, where master data, definitions and calculations are consistent and documented. It is easy to state, higher up in the model, how the business should be steered – but can the company’s data model actually support that? Have customers been mapped to the right segments? Are costs allocated in a way that makes sense? Financial steering requires data that is stable, understandable and usable.  

Rewards must ensure that incentives are linked to outcomes people can influence, and that they support the organisation as a whole. The business should design a reward model that reinforces the right behaviours in line with the financial steering model.  

Finally, behaviours describes the actual financial behaviour in the organisation. It is the sum of what is tolerated, reinforced and addressed consistently. If people do not operate within the agreed framework and principles, you can forget the first 15 points. A classic saying is that culture eats strategy for breakfast – and that applies to financial steering models too. The right behaviour is secured through both clear boundaries and consistent intervention when behaviour deviates.  

The content of this article is a brief description of the full framework that supports the financial steering model. If you are uncertain whether your company’s financial steering model is clearly defined and would like to learn more, please give us a call. We are always ready to meet and help.