Financial Strategy in the VUCA Era #225

The End of "Low-Cost Capital" and Stable Markets

Traditionally, corporate financial strategy was built on clear assumptions:
• Capital can be raised at a low cost
• The market is somewhat predictable
• Growth will continue

Under these conditions, sales targets were set based on a percentage increase over the previous year, and strategies were assembled afterward to achieve them.
Perhaps such "growth-first" thinking was rational at the time.

"Low-cost capital" as used here does not just mean low interest rates.
It refers to a state where the difficulty of raising funds is extremely low, such as cheap borrowing, favorable stock issuance, and lenient investors.

Furthermore, because the market was relatively stable,
medium-to-long-term plans were based on the premise of being "predictable."

That is precisely why, even with some inefficiencies,
the idea that "growth will eventually solve it" was valid.

In an Unpredictable Era, the Same Strategy Will Not Work

Today, we live in what is called a VUCA environment, characterized by rapid change and difficulty in predicting the future.

Furthermore, fundraising has become stricter, inflation has become the norm, and economic fluctuations are severe.

It is now difficult to even forecast demand for the following year, let alone create medium-term plans.
In this environment, financial strategies based on linear growth do not function.

The keywords are "Scenario" and "Resilience"

There are two main pillars for future financial strategy.

1. Scenario-based

Instead of assuming a single future,
we anticipate multiple scenarios simultaneously—such as interest rate fluctuations, exchange rate fluctuations, economic fluctuations, demand fluctuations, and inflation—and prepare strategies for each.
The important thing is not perfection, but

establishing a system that can respond to any future.
Practically speaking, it is desirable to combine multiple assumptions on horizontal and vertical axes

and have multiple strategic options.

2. Resilience (Durability)

Resilience is strength and the ability to recover from changes in the external environment.

What should be emphasized is not just sales growth, but the strengthening of financial structure.
• Do not assume unreasonable growth
• Build a structure that can withstand even a recession

This is the starting point.

What should be prioritized?

The conclusion is simple.

It is not sales, but cash flow and unit economics.

① Cash Flow

No matter how much profit is made,
it is meaningless if no cash remains.

Profit must always be backed by cash.

② Unit Economics

Break the business down into its smallest units
and verify whether each unit is profitable.

"Is the structure such that it is truly profitable as we increase by one?"

If this is not established, there is no point in expanding the scale.

Our Practice: Decomposition via MQ Accounting

As a manufacturing company, we manage based on products usingMQ Accounting.
• Sales = Selling Price × Quantity
• Variable Costs = Variable Unit Price × Quantity
• Gross Profit = Sales - Variable Costs
• Operating Profit = Gross Profit - Fixed Costs

Although these elements are only a part, by decomposing them in this way,
• Where the issues are
• Where improvements should be made

can be grasped quickly.

In an uncertain environment,
being able to decompose means being able to respond.

Redistribution of Management Resources is also Financial Strategy

Financial strategy is not just about "numbers."

Management resources—people, goods, money, information, knowledge...
The allocation of these is also an important decision.

For example, regarding labor shortages,
• Not just strengthening recruitment
• Improving productivity (using AI, etc.)
• Reskilling

complex responses like these are necessary.

In other words,

the "combination" of management resources itself becomes the strategy.

The Direction of Financial Strategy

I believe that future financial strategy needs to be redesigned with
• Scenario-based (preparedness for multiple futures)
• Resilience (durable structure)

as its axes.

It is not the environment that has changed, but the premises.

Whether or not one can realize those premises
is what I believe will determine the quality of future decision-making.