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Posts Tagged ‘schneider electric’

Exceptional Value Is In The Sum Of The Parts…

December 2nd, 2016 Comments off

The original goal when I started my blog was to bring an insight into financial strategies and operational disciplines that often drive the actions of the Finance team and why they often wanted to be involved in so many other parts of the organization. More involvement than just reporting what was happening in the other functional areas we work with. Quite simply, exceptional value is almost always created and driven by the entire sum of the parts and not just the actions of a single individual, department, product concept, or operating division. It’s all about the sum of the parts…the team that has been assembled to execute on a commitment made to the Board, Executive team…or a commitment to employees.
My point of view isn’t just based on a single company or a single experience of corporate success, but the pattern I’ve seen played out over a number of companies. Whether it’s been most recently at Cylance, strong financial and brand performance at DC Shoes, or aggressive EBIT initiatives during my time with a division of Schneider Electric, the exceptional results could not have been accomplished without the strength and commitment of a competent team. It always started with defining the mission and breaking down that mission into a set of directives that would shared across the functional areas. It was NEVER about closed door initiatives, secret meetings, or selective transparency on key topics. It has to be about clear communication, transparency, and honesty with the team on the direction that everyone is moving and the expected outcome. Measured, achievable, and sustainable changes to the business. There’s no room for short term thinking or decision making that alienates key team members.
In the case of MGE UPS Systems (Schneider Electric division), we were moving into some key periods for the company and were starting to see compression in our margins, our operating metrics, and ultimately the results we were reporting to corporate in France. All this while we were seeing massive fluctuations in just about all of our raw material prices, which at that time were primarily copper, lead, and steel. As a larger Executive team, and under the direction of our Chairman, we identified approximately 15-20 initiatives that ranged from increasing Services utilization rates, to improving battery pricing, to improving revenues in underperforming segments, as well as headcount related metrics and expenses. Additional initiatives included balance sheet management for the improvement of A/P terms, improving DSO metrics, and bad debt expense. None of these in any sense were a smoking gun, but as a collective and through the commitments of all the teams involved, we’d be able to make some very material improvements to our EBIT results. This overall initiative spanned the course of approximately 9-months and we met on a monthly basis, with our Chairman in attendance, and reviewed the progress being made on all initiatives. The reviews were not done on a 1:1 basis, but as a collective in a larger conference room. It was the purest form of group accountability. While a significant grind during that period, it was amazing to see that the team not only achieved the originally targeted results, but exceeded the commitment made. Still an amazing accomplishment by that team in what was a very mature / static company that was not experiencing anything close to hyper growth. It was about absolute efficiency in execution.
Fast forward to DC Shoes and this was about a huge amount of uncertainty. I walked into a situation where there was a heavily entrenched culture that was operating under the Quiksilver corporate umbrella, but operating completely independently and in a different location than the rest of the organization. A truly independent team and company. The goal going in was to partner with the new President for DC, as well as the likely relocation of the company to Quik HQ since the DC lease was expiring. At this time, barring some selective improvements, DC was a high performing brand, had tremendous additional potential, and was highly accretive to the overall corporate results. Corporate results that were driven primarily by the Quiksilver brand, DC Shoes, Quiksilver Retail, Roxy, as well as a host of smaller brands. DC’s continued results were so strong that it was a near impossibility to sell the brand due to the deleveraging it would create in the corporate P&L for what would remain and the subsequent results that would be reported moving forward. There was also the development of a full 5-yr Plan that had the DC brand growing to almost $500M, which in the few years after the brand was moved to HQ, would have exceeded the market cap of the entire company. The unfortunate part for DC is that while the brand was performing exceptionally well and aggressively growing market share, the sum of the corporate parts were anything but a synchronized and collaborative team. There was infighting between brands, selective support from corporate oversight teams, key executives making decisions they weren’t qualified to make for other brands, and ultimately, a complete scarcity of financial resources after extended periods of poor spending decisions and declining results. We know the unfortunate position that Quiksilver found itself in.
Cylance…a completely clean slate. No baggage. A complete blue ocean scenario to chart a path as a team and to start executing. We had a CEO & Founder who had an incredible security vision after decades of being told it wasn’t possible. We had a Chief Scientist that is probably one of the most brilliant folks that could have been chosen to head up our Research team. We had a CTO that was a CISO for a top telecom and moved his family from Australia for the crazy dream. An SVP of Product that was laser focused on building out the entire product team, while also building the product! We had a CMO that had a strong pedigree in security and did whatever it took to get the Cylance name out there…and in brilliant fashion. An SVP of Business Development that delivered on whatever was asked…including the collaborative and successful closing of the Dell OEM agreement. We had a VP of Professional Services that started generating revenue in our first Quarter. We had a VP of Legal that kept us out of the courtroom and played a key role in our corporate foundation. We had an SVP of Global Sales that partnered with everyone on the team to deliver the first $1M order…$10M order…crazy sales growth every Quarter, domestic team expansion, and international expansion. We finally got our first CPO that in just one short year oversaw employee growth of over 500 employees. I can’t imagine Cylance experiencing the level of success we did without the team and their amazing contributions. I can’t imagine that the team would have been able to share in the extreme success we did absent any of these individuals. Would there have been success, absolutely…but at what moderated level? Truly exceptional team results…and in the case of Cylance, exceptional value was in the sum of the parts.
Thanks for reading…
Jeffrey Ishmael

Are You Striving For Improvement or Optimization?

July 16th, 2012 Comments off

     As my prior colleagues can attest, my pursuit of improved financial performance has never been focused on our results versus a prior year, or even a competitor, but in striving for the optimal position for our business relative to our goals. While I will always report our position relative to a Budget and the promises made to key stakeholders, we know Budgets are a static view in the midst of market dynamics that are constantly changing. Improvement in an of itself can very often be characterized as mediocrity, while a sincere drive for optimization implies a focused drive on pursuing the highest caliber of result. You might say that’s a rather general statement so let’s put this in a more specific context.

     Let’s take one of the more significant categories relative to working capital management…Inventory. Let’s make the assumption that a company is growing at 15% and has determined that there is a goal to keep inventory growth to no more than 5%. In this situation, you’re essentially going to realize a higher velocity on that inventory, thus a lower amount of inventory days on hand, and theoretically, a more “optimal” position. Right? Not necessarily. You reach the end of the year, pat yourself on the back for achieving the revenue growth and keeping inventory growth to only 4%. Hitting your goals doesn’t imply that you’ve achieved an optimal position. It could easily be the contrary.

     Have you taken the time to run a more detailed analysis of your revenue stream, what those trends are in the most recent 4-8 Quarters, and how that compares to the anticipated growth in the coming year? Have you taken the time to run a more detailed analysis of your on-hand inventory relative to the revenue statistics to ensure that you have an appropriate pairing between the two? What’s even more challenging is to add the complexity of multiple seasons, product categories, demographics, or even regional elements, and you have a very challenging situation to manage.

     This is the analysis that is so critical when it comes to not only the management of working capital, but the management of resources throughout the entire organization. Whether you’re the CFO, CEO, or the Director of a key functional area, have you taken the time to analyze how headcount or marketing resources are allocated throughout the company? During my time with MGE, this would have been a question for not just our own operating division, but a question that Schneider Electric would have been tabling across all their brand divisions. These are the tough questions that need to be pursued when you’re really striving for optimized results.

Thanks for reading…

Jeffrey Ishmael

Internal Audit – Finance & Control

August 14th, 2008 Comments off

In my last posting about embracing the Internal Audit process, I spoke to the value this exercise can provide to any current or new Finance leader. For the audit that we had gone through after the close of purchase for the final minority share of our business, we performed a comprehensive review on six key areas of our operations. I outlined these areas in my last post, and today, will go into a little more detail on the area of Finance & Control. It’s still best to keep in mind that this was an audit that spanned approximately 8-weeks so even a more specific overview is still a summary at best and the level of underlying detail is much greater than what is represented here.

As far as our review of the Finance area, the goal was to assess the adequacy of our primary Finance & Accounting processes, Credit management, and our application of Group Accounting principles. To break this review down a little further, we were going to run through some of the following steps:
1. An analytic review of our financial statements along with our external auditor reports.
2. A review of our systems and processes that supported our financial reporting.
3. Reviews of our delegations of authority.
4. Our compliance with Group Accounting principles.
5. Invoicing, Credit, and Cash management.
6. Assess the valuations of our balance sheet reserves.
7. Reviews of our fixed assets and associated valuations.
8. Reviews of employee expense reports.

This was certainly not a simple review and necessitated extensive time to pulling documents and reviewing our processes. Further, each one of these process needed to be assessed a risk-weighting that determined what degree of risk it posed to achieving our results and generating accurate reporting. There were three distinct levels of risk depending on what “Findings” were associated with each area. A “Finding” could either be quantified through it’s potential impact to results or qualified through a breach of corporate policies or guidelines, or the ability to impact the reputation of our corporate parent.

Again, since we had already been operating under the umbrella of our corporate parent for a number of years, we had already embraced their guidelines and reported our results according to Group Accounting principles. Therefore, our preparation level was already very good with respect to this audit. Any anxiety levels aside, it was a process that should be embraced by any Finance leader that is new to the organization and needs to uncover potential areas of risk.

Thanks for reading . . . .

Internal Audits – embrace & value the process.

August 7th, 2008 Comments off

While I had always participated in the internal audit process and provided my portion of the contribution, I’m not sure I really appreciated the process until I was the person actually leading the Finance team and responsible for everything that happened “under my watch”. During my time with MGE, it was decided by our parent company, Schneider Electric, that they would be purchasing the remaining portion of our company and converting us to a wholly-owned subsidiary of their $13 billion conglomerate. At the close of the transaction, Schneider sent in a full team to conduct a comprehensive internal audit on our process, documented procedures, and potential areas or risk.

The audit was not going to cover just the Finance department, but encompass every area of the organization. This was going to be an 8-week process that was going to cover Inventory & Logistics, Sales & Marketing, IT, as well as Human Resources. Their main objective was to assess the potential risks within each one of these areas and rate those levels of risk according to their importance and the ability to potentially have a material effect on our financial results. We also wanted to determine what levels of internal control and monitoring we had in place to deal with the risk, and if necessary, propose recommendations to correct either the situation or our ability to follow the risk.

Since we had always had a very good relationship with Schneider Electric there was no significant anxiety of the proposed audit, but this effort was much more comprehensive than previous audit engagements. We were hosting individuals from Los Angeles, Chicago, and Paris, along with occassional visits from external auditors Mazars and Moss Adams. Perhaps there was no significant anxiety since we had always operated our entity with a high level of control and accountability. Ultimately, our audit concluded and in a very satisfactory manner with some areas that were noted for improvement and a timeline for follow-up and modifications.

This is obviously a process that can be addressed in much more detail considering this was an 8-week engagement, which I will in future posts. I will spend more time discussing the audit engagement for each area. The most significant takeaway was the additional insight that it gave us into our organization and receiving an unbiased view of our operations. For any new CFO, this is a critical step to go through and assess what the strengths and weaknesses are for the organization and what the areas of risk are for you in the execution of the company’s financial goals. An area that certainly shouldn’t be left to chance & is well worth the 4-8 weeks that you might invest.

Thanks for reading . . . .