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Discipline #2: CFO as Analyst and Advisor

May 20th, 2009 Comments off

            In the last segment on “Reinventing the CFO”, I covered the CFO role as a Freedom Fighter, which mainly dealt with the CFO providing management with the necessary data for them to make effective decisions and execute the strategic goals of the company. Taking this role a step further, Jeremy Hope classifies the second discipline as the CFO as Analyst and Advisor.  In this role, Hope defines the role of the CFO as one that transitions from Accounting Specialist to that of a Strategic Business Partner. One of the quotes I value in this book, and worth repeating here, comes from an interview Hope conducted with the finance team at UPS, where they communicated “our business is delivering packages, not debits and credits.” Outstanding!

 

            One point that Hope touches on during his discussion of this discipline is that some CFO’s find themselves conflicted in this role as they believe they should “first and foremost be about effective stewardship and scorekeeping rather than business advice and score making.”  This is a good point, but Hope further clarifies that “this doesn’t mean that CFO’s can’t take their eye of the compliance and control ball.” Absolutely!  The view that I take when I come into a company, especially into a position where there may not have been a dedicated or performing CFO position, is that the position should not be looked at as an expense, but should be viewed as an investment.  With this in mind, the expectation is that the CFO delivers a quantifiable return on that investment. This return on investment is achieved by working collaboratively with all functional areas and providing the financial analysis and guidance that allows them to achieve goals. An achievement of goals that results in increased financial efficiencies, whether that might be improved working capital, reduced operating expenses, or improved gross margins by identifying deficiencies.

 

            A perfect example of playing this role in a company is during the time I spent working with a capital equipment company in which 30% of their revenues were Service-based.  At the time I was tasked with developing additional reporting on this segment, there was little in place.  The segment was 30% of revenues, encapsulated 35% of our headcount, and consumed a significant part of our operating budget. There were no hourly cost standards in place, nor was there any insight as to profitability of the different service segments. After a slightly painful period of changes (legacy employee habits…), we implemented a nationwide hourly reporting structure which tracked all hours according to a new site of activity codes. Based on these new activity codes, and whether they were productive or non-productive activities, we were able to calculate productivity levels by region, determine hourly costs rates, and then determine if our Service offering was appropriately priced.  Since this project had the ability to drastically improve our bottom line, I managed the effort, thus assuming the role of Analyst and Advisor.  The latter role more so as we used the data to prompt decisions about the management of hours and making proper deployment decisions.

 

            In Hope’s book he identifies 4-key steps “that the CFO and the finance team need to take to be in a position to act as trusted and valued business partners.”

  • Strike the right balance between control and decision support.
  • Build a high performance team.
  • Use technology to deliver high quality information.
  • Provide effective decision support.

 

This is clearly an area that can be discussed in much more detail. I believe that one of the more important aspects of this discipline is that assuming the role of Analyst and Advisor is not one of static reporting and involvement. This discipline requires the ability to by dynamic in the position and an ability to adapt to not only the changing needs of management, but to adapt to the changing conditions of the market and advise the team of your observations. It’s not about being continually buried in a spreadsheet, but being in tune with all aspects of the business and assuming a position to identify potential risks to the business. Have you effectively assumed the role of Analyst and Advisor?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Discipline #1: CFO as the Freedom Fighter

May 18th, 2009 Comments off

            As I tabled in my post from last week, one of the hardest disciplines to work into the day-to-day activities is to continually find ways to challenge myself and grow as a professional. As a part of a 7-part series, I discussed my continue reference and affirmation of Jeremy Hope’s book, Reinventing the CFO. Jeremy discusses 7 primary disciplines that he believes apply to the current CFO. The first discipline mentioned in his book is the CFO as Freedom Fighter.

 

            The primary belief behind this discipline lies behind the overwhelming levels of information and reporting that are available to the CFO, and expected to be reviewed as part of the decision-making process. Hope’s book specifically discusses how senior executives use “powerful IT systems to drill down to increasing levels of detail and demand instant answers to irrelevant questions”. Essentially, this comes back to the concept of analysis paralysis. This is ultimately a constant and increasing flow of information, which ultimately results in a significantly delayed or non-existent decision.  Hope also believes that it’s the responsibility of the CFO to “call a halt to this insane data-induced micromanagement”.  Hope further believes that the “CFO has to overcome the resistance of a number of people with vested interests in preserving the status quo”. He further comments that “These are often people whose skill is in spinning, fudging, and manipulating the information so that higher-level managers see and hear only a customized version of the truth”. Hope suggests that the CFO should:

         Rescue Managers from information overload

         Simplify systems and reports

         Focus on truth and transparency

         Avoid unnecessary tools and systems

 

With respect to my own approach, I have always tried to deliver reporting to my internal customers in a manner that will give them the necessary data to make well informed decision, but letting them know that further details are available if absolutely necessary for further supporting key decisions. Depending on the situation I am in, I will usually run a bit of a “diagnostic” to determine if the current level of reporting is really adding value to the existing management team. What I don’t want to do is put my team in a position where we are simply being kept busy generating a volume of reports that are not being used in any meaningful manner by management. My view is that Finance is present to drive results in the organization and the only way that we will be successful with that is providing reporting that will result in decisions that will improve productivity, justify elimination or expansion of product lines, or support longer-term strategic initiatives.

 

At my current company, I started my engagement at a time that I would have considered late for most Budget calendars. However, it was also a small enough company that I knew we would be able to respond quickly to changes and could still finalize a Budget before the end of the year. Coming into the company, I found a GL that was entirely too detailed for the type of business that was being operated, had been only mildly enforced during prior budgeting efforts, but not in any serious level of internal accountability. While I would normally choose to have as much detailed info as possible, I felt that we needed to take a number of steps back, budget at the 40k foot level, implement that Budget, and ultimately, perform to that Budget with the requisite levels of accountability.  I would then expand the level of detail and expectations going into 2010 once we had reestablished a solid foundation.  I also wanted a Budget that was not so complex that it couldn’t be easily followed by all employees.

 

Once the Budget was finalized, I took the step of providing a much higher degree of transparency than had previously been present in monthly reporting. In fact, much of the financial information had not been shared with the wider employee base. The view I adopt is that unless all parties in the game know what the ultimate goal is, then how can you expect that those goals will be achieved? To further clarify, I certainly don’t provide the same level of transparency to general staff that I do with the Board or key Executives. Nonetheless, all employees know what our key goals are.

 

I’ve had too many experiences at prior companies to know that having a high degree of information overload will virtually paralyze the decision process, and depending on the availability of the information, can serious cloud the accuracy of the data. I’ve also had enough experiences to know that increased levels of transparency, tempered for the specific audience, will result in a higher degree of involvement and belief in the end goals. Although I have also found that shared information can also result in undesirable situations, this is more the rare exception than a norm.  No question, the CFO is in place as a Freedom Fighter for management to execute at the highest level.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Challenging yourself when the climate is challenging you….

May 14th, 2009 Comments off

     I have found that one of the hardest disciplines to work into the day-to-day activities is to continually find ways to challenge myself and grow as a professional. I have no problem putting myself in situations where the work environment is a challenge, in fact, I pursue it and welcome it.  Over the last 18-months there has been no shortage of external challenges that have forced me to up the skillset and focus on daily operations. With that in mind, the biggest challenge has been taking time to step back and assess the overall package, what I bring to the organization, and review what areas I can improve on. 

     With respect to the introspective review, I tend to cross-reference a book I believe is a great read for all Finance staff, regardless of level; “Reinventing the CFO” by Jeremy Hope.  The book discusses how the role of the CFO has clearly moved beyond the role of Accountant and reporter to the NECESSARY role of Strategist, Architect, Engineer, & Mechanic. I’ve coined my own acronym to remember the four elements; S-E-A-M , since I believe that Finance really is the department that keeps the “seams” of the organization together and keeps everyone focused on a unified goal – positive corporate financial performance.

     In Jeremy Hope’s book, he expands on 7-key concepts that he believes are the core responsibilities of the CFO within an organization.

  • -CFO as the Freedom Fighter
  • -CFO as the Analyst & Advisor
  • -CFO as the Architect of Adaptive Management
  • -CFO as a Warrior against Waste
  • -CFO as a Master of Measurement
  • -CFO as a Regulator of Risk
  • -CFO as a Champion of Change

     The seven concepts above will be the basis of my next seven blog entries as I go through and provide an overview of Hope’s views on each of these, as well as my application of these seven principles in my daily activities. I firmly believe in the principles above and believe I practice them on a constant basis. In fact, I tend to believe that it’s my relentless pursuit of these points, in the face of adverse conditions, that might have cost me a prior position. I’m curious to challenge myself and see just how effectively I am working the points above into my work approach on a daily basis. There’s certainly no shortage of projects to complete at my company, but I believe it’s equally important to step back on a regular basis, challenge myself, and ensure that I am delivering the highest level of value in return for the investment that the company is making in me. How are you challening yourself when this difficult economy keeps challenging you?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Book Review: Patrick Lencioni and “The Five Temptations”…

March 18th, 2009 Comments off

     Right on the heels of some comments this morning regarding the evolving role of the CFO, I finished reading my latest book last night by Patrick Lencioni; “The Five Temptations of a CEO”.  While it might appear from the cover that it’s more directed towards a general management application, that’s exactly where the leading Finance folks seem to be finding themselves these days. If you haven’t read any of Lencioni’s works, they are great reading. While really simplistic in content, it’s refreshing to be reminded of concepts that really are simple and to reinforce the need sometimes to get back to basics. To put a focus on the values that, while maybe practiced daily, need to be communicated to others.

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      In his first work, Lencioni discusses the five temptations that CEO’s need to avoid. His collection of these five temptations were developed as a result of his consulting work, compiled, further discussed, and affirmed through a wider audience. Simply, those five temptations are:

Temptation #1:   Choosing Status over Results

Temptation #2:   Choosing Popularity over Accountability

Temptation #3:   Choosing Certainty over Clarity

Temptation #4:   Choosing Harmony over Conflict

Temptation #5:   Choosing Invulnerability over Trust

     It really is interesting to see how these cross over to a Finance application and where we might fall into one of these areas.  With respect to Finance, I am almost always certainly pursuing Certainty over Clarity when it comes to making decisions regarding significant expenditures. Although we now find ourselves in an environment where speed and the speed of adaptation are playing a significant role, I am typically pursuing Certainty.  Moving to the last one, with respect to business, I trust few. When it comes to major decision making – What due diligence steps have been pursued? Do you have the supporting documentation? What is the source of your data and when was it last updated? Resume looks great but did you run reference checks?  Trust in Finance?….Not often, and only after I’ve developed a good history with the person in question. But then again, many had a long history with Madoff.

     Hopefully you enjoy the book as much as I did and I highly suggest reading some of Lencioni’s other works.

Thanks for reading . . . .

Jeffrey Ishmael

Book Review: Reinventing the CFO

July 22nd, 2008 Comments off

     Reinventing the CFO, by Jeremy Hope, is an absolutely fantastic book if you’re looking for a little perspective on how you’re approaching your own Finance department and the value you are bringing to the company.  It goes without saying that the role of the CFO is has moved beyond that of a simple Accountant or Controller and has progressed to that of financial strategist and partner to the rest of the executive team.  There’s extensive commentary that prompts the introspective question of what value you are bringing to the organization outside of month-to-month reporting. It questions the approach you take in your personal approach and whether you are seeing realizing the highest levels of efficiency within your group.  A must read for any finance professional who has achieved, or aspires to, a senior finance position.  It never hurts to question your own approach……after all, it never hurts to have a little more humility within a Finance department.

Thanks for reading . . . .

Book Review: “The Ultimate Question”

July 7th, 2008 Comments off

     I’ve been struck a bit by the reading bug lately and fortunately the books that have been recommended have been good reading and with some great takeaways.  The latest is “The Ultimate Question” written by Fred Reichheld.  The content of the book is entirely focused on Reichheld’s proprietary NPS (Net Promoter Score) theorem and it’s corporate application.  Reichheld, who joined the highly respected Bain & Co. in 1977, was named a partner in 1982, later became a Bain Fellow, and also founded the Loyalty practice within Bain.

     Reichheld goes into great detail in the book documenting the distinct differences between good profits and bad profits.  Essentially, those profits that are either tied to a loyal and supportive customer base versus those that are gleaned from customers unwillingly tied into unfavorable contracts or other situations that are not loyalty-based.  The book discusses in detail the different manners in which customers track, and in many cases only attempt to, track those customers that are their biggest cheerleaders and act as pseudo evangelists for the organization.  A very worthwhile read for Finance folk who need to build their toolbox a bit when it comes to the marketing side of the organization.  For additional info, you can visit Fred Reichheld site at www.theultimatequestion.com .

Thanks for reading….

Jeffrey Ishmael

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Book Review: Blue Ocean Strategy

June 24th, 2008 Comments off

     Although it wasn’t on my short-term list of reads, I’ve been reading Blue Ocean Strategy by W. Chan Kim.  Although I still have a couple of chapters to go I couldn’t resist posting a small write-up about the book.  The basic premise behind the book is the strategic position of a company to create “Blue Ocean” opportunities to create a long-term advantage.  The “Blue Ocean” strategies are those that are beyond just modifying an existing market, but creating brand new markets.  The book goes into analyzing countless examples, which include companies such as Starbucks, Blockbuster Video, CEMEX, ExecuJet, and a host of others.  While some of these companies are currently struggling and and attempting to reposition themselves, the basic premise is about creating a new market. It also goes into discussing the differences between a “Blue Ocean” and a “Red Ocean”, the latter being a market that is driven by high competition, price competitiveness, and lower resulting margins.  Definitely worth your time to pick-up and read.

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