Strategic vs. Tactical Financial Management: Key Differences

By Indeed Editorial Team

Published June 26, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Financial management refers to strategies that a company uses in organizing its income and expenses. There are several different types of financial management, including strategic and tactical. Learning about these types of financial management practices can help you become a better team member in contributing to your company's financial goals. In this article, we define strategic and tactical financial management, share their benefits, and discuss the differences between strategic vs. tactical financial management.

Related: Why Risk Management Is Important (With Strategies)

What are the definitions of strategic vs. tactical financial management?

It's important to know the definitions of strategic vs. tactical financial management before exploring their benefits and differences. Strategic financial management is a method of organizing a company's finances in a way that prepares the company for the future. This means that strategic financial management aims to maximize a company's profits and return on investment. When conducting strategic financial management, companies consider their long-term financial goals and implement strategies to achieve these long-term objectives. This includes working to identify current and future opportunities that can help with achieving determined long-term financial goals.

Tactical financial management focuses on the company's current position in the market. It involves developing specific targets for performance. Typically, these goals focus on generating more income for the company or improving the efficiency of the company's operations. After stakeholders define these goals, they focus on creating actionable, measurable tasks that can help the company achieve these goals. Companies may use them to develop specific expectations, regulations, or workflows for each individual department.

Benefits of strategic financial management

Because strategic financial management focuses on achieving long-term financial goals, there are many benefits to using this method of financial planning. Benefits of strategic financial management include:

Establishing a common framework

When a business uses strategic financial management, they're creating long-term financial goals for the company. The company is then able to use these long-term financial goals to create systems to help its business achieve these goals. This means that each department is aware of these goals and motivated to help the company achieve them, increasing unity and direction.

Related: Learning Management System Examples: Description and Purpose

Encourages buy-in

Because strategic financial management creates clear goals, it can help increase buy-in from executives and shareholders. These clear goals help stakeholders to understand and support business decisions made to achieve these goals. Having clear strategies and financial goals can also make it easier to gain the trust of a board of directors or investors.

Guides investments and innovations

Developing technology can be expensive, but it's also an important way for a company to grow as a market leader. By using strategic financial management, companies have clear goals for a decade or two into the future and can use these goals to determine what technology or developments might be helpful for them to develop. They can use these projections to guide where they invest their money and resources, while also working to manage potential risks.

Aligns performance goals throughout the company

When the company has clear long-term financial goals, department heads and managers are able to develop specific goals for their department, which helps that department work towards contributing to the company achieving its financial goals. This helps to create specific ways to measure performance and progress. It can also help create specific goals for individual team members, further improving alignment within the company.

Encourages a competitive landscape

Strategic financial management encourages companies to be aware of their competitors so that they can plan for changes in the market. Companies can use simulations to determine how the market might change over the long term and how their competitors might react. They can then prepare strategies for how to remain competitive if these situations occur, helping to better prepare the business for the future. For example, if the company anticipates that their competitor may release new products in the future, they may want to create a strategy for introducing new products as well, so that they can remain competitive.

Benefits of tactical financial management

Here are some common benefits of tactical financial management:

Offers tangible results

Because tactical financial management works to create actionable steps and methods, it's easier to identify tangible results. By creating a targeted plan, team members have an action plan that they can implement to achieve the goals set out by tactical financial management processes. Tactical financial planning also allows you to develop a timeline for your tasks and goals so that you're able to visualize when you may expect to see certain results.

Related: What Is Tactical Marketing? (Plus Importance and How-to)

Lower risks

Tactical financial management focuses on the current market conditions, meaning that the company is able to analyze data about the current market to develop a tactical financial plan with fewer risks. Because tactical planning is a short-term financial management option, less forecasting is necessary, which further helps reduce risk. Companies may choose to use tactical financial management as a step toward achieving their long-term goals while reducing risk.

Related: Why Risk Management Is Important (With Strategies)

Diversifies the company's focus

Tactical financial planning works to develop an actionable plan of tasks for each department in the company. With each department having specific goals and objectives, each team member is able to understand their role in contributing to the company. This can help diversify the company's focus, as each department can work towards developing new innovations and improving processes.

Increased flexibility

Because tactical financial planning creates specific benchmarks along a timeline, it's easier to see if results aren't being achieved. This means that the company can shift goals and tasks if necessary, offering more flexibility. Increased flexibility also means that the company is able to change its tactical financial plan based on current needs or changes in the market.

Related: What Are the Four Functions of Management? (With Tips)

Differences between strategic vs. tactical financial management

While both strategic and tactical financial management work to help companies achieve financial goals, there are several differences between these two methods of financial management. Key differences between strategic and tactical financial management include:

Duration

One of the major differences between strategic and tactical financial management is the timeline that they consider. Strategic financial management focuses on developing long-term goals through forecasting market changes. Tactical financial management focuses on more short-term goals by making decisions and creating an action plan based on current market conditions.

Industry

While many different types of industries can use both strategic and tactical financial management, different industries tend to use one type of financial management more commonly. For example, manufacturing, sales, and service industries may choose to use strategic financial management to develop processes and goals to gain or maintain market share long term. Examples of strategic goals include sales quotas or production goals. More task-based industries, such as construction and health care, may use tactical financial management to create a short-term action plan based on the current market and may include work, such as quality testing, marketing, or sales tasks.

Roles

The individuals involved in financial management may differ between the different types of financial management. Because strategic financial management focuses on developing broader, long-term goals, individuals involved are often decision-makers in the company, such as executives, shareholders, and analysts. As tactical financial management focuses more on task-based goals, individuals involved in creating these plans include those more typically involved in operations, such as managers, marketers, manufacturers, and sales representatives.

Purpose

While both strategic and tactical financial management work to improve the company's revenue, their specific purposes are more unique. Strategic financial management includes more concept-related planning, such as developing goals, visions, and values for the company. The management then uses it to guide the company in its operations. Tactical financial management focuses more on how the company can achieve its goals. This includes the specific tasks and actions that a company can use to achieve its goals.

Output

The results of strategic financial management and tactical financial management also differ. In strategic financial management, the objective of financial planning is to develop goals that the company can use when making decisions. With tactical financial management, the output is the deliverables, shown in the completion of tasks.

Skills

The skills that are important for these methods of financial planning differ. For strategic financial management, skills that are important include creativity, analysis, and problem-solving, as individuals involved work to design and implement abstract concepts. For tactical financial management, more industry-specific knowledge is helpful. This is because individuals are developing and implementing tasks for their specific roles. Skills that you may use when taking part in tactical financial management include writing, marketing, communication, and manufacturing.

Explore more articles