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Partnering with IT

As Seen in CFO Studio Magazine Q2 2017 Issue

-By Michael Rist, Chief Financial Officer, VIP Petcare

ARE YOU ASKING YOUR CIO THE RIGHT QUESTIONS?

As the role of the CFO continues to evolve, finance executives must continually augment their knowledge of technology and how it impacts the continuing operation and strategic direction of the company. This starts with open and ongoing dialog. The CFO needs a good understanding of how the IT department is positioned in the context of the overall strategy of the company. Below are five key questions to ask your CIO regardless of industry or company size.

How is the IT strategy aligned with the corporate strategy?

Asking this question allows you to gauge where resources are being directed within IT and if they are yielding returns that exceed the hurdle rate. You need to make sure there is a viable business case for every material project in the IT portfolio that supports the corporate strategy. It’s important to note that not every project will translate into an easy-to-calculate ROI, and qualitative measures must therefore be in place to ensure that shareholder value is created.

What risks are you already planning for?

The answer should include testing, firewalls, critical system failure, anti-virus, spyware, anti-malware, etc. If you are holding credit card information, you must comply with the Payment Card Industry Data Security Standard (PCI DSS) and keep that compliance up-to-date every day. Not doing so may expose you to hefty fines and the risk of losing the authorization to process payment card transactions. The goal here is not to eliminate or minimize risk but to manage the risk exposure to ensure the right level of risk, in order to effectively pursue the strategic goals of the company.

What scares you? (If he says nothing, that’s a problem!)

There are numerous things every CIO should be scared of, from zero-day vulnerability to social engineering or phishing, which has become more and more sophisticated over the last couple of years. Key here is that the CIO makes you aware of these without all the technical details.

What is the security around our data and systems?

Not all data is equally sensitive. A plan must ensure that the most critical data is safeguarded. This plan should be a collaboration between IT and the rest of senior management.

What is our response plan for an incident?

Not every organization has one of these, and that’s OK, provided there is a clear plan of crisis response. Some organizations have generalized response plans for crises of varying types (critical system failure, natural disaster, power outages, weather, strike, etc.) with cyber incidents just another form of occurrence to be managed under such a plan. Senior management should run a process review on an annual basis.

Being a technology-savvy CFO doesn’t mean simply having the latest and greatest technology or knowing the latest cyber fad. It means being able to advance your organization’s growth or improve its competitive position by asking questions that identify key constraints holding back the organization from pursuing its goals.

A Strong Story

As Seen in CFO Studio Magazine Q2 2017 Issue

-By Jerome D. Kern, Vice President & CFO, Flexi-Van Leasing, Inc.

WHEN HANDLING INVESTOR RELATIONS, INFORMATION, NOT NUMBERS, IS IMPORTANT

You’ve just sat down in the big chair. You’re a new CFO. Congratulations! If you grew up on the accounting side of the house, investor relations may be new to you. Here’s what to keep in mind about this significant, new responsibility.

Investor relations is how a company communicates and interacts with external parties to ensure that your company’s financial story is being told accurately. While it may be a department reporting directly to the CFO, it may also be part of a corporate communications department. In either case, however, the CFO plays arguably the most crucial role for the company’s investor relations effort.

While investor relations is obviously important for public companies, it can be equally important for private companies, as even private companies may have to deal with equity owners and debt or credit analysts. Ensuring that external analysts have an up-to-date and solid understanding of the company allows the market system to work.

Timely and Fair

Remember that your goal in investor relations is not to prop up the stock price of your company. You’re not a salesperson. Don’t measure success in investor relations by stock price. Your goal is to ensure that information about the company — positive or negative — gets to outside parties when it is needed and in an appropriate way. Timely communications that follow the rules (the SEC’s Regulation FD, for example) are crucial to controlling news about your organization.

How do you get information to outside parties effectively? Press releases, earnings calls, presentations at conferences, and one-on-one analyst meetings are your main tools. What you’ll likely find is that there is a somewhat limited set of analysts that cover your industry or company size, allowing you to identify them and build a rapport. Remember, when developing these relationships, the kindergarten rule of “honesty is the best policy” holds true even here. You can be expected to present the company in a good light, but you must also present the company in a fair light. Don’t hide negatives, but be sure to present them in the right context. You wouldn’t be the CFO of a company you didn’t believe in, so make sure the people you’re talking to know the reasons your company will prosper — even in bad times.

When you’re talking to outside parties, the main rule of communication is: Know your audience. Different people will be focused on different things. An equity analyst or a portfolio manager may be looking for a growth story. That will get them the capital appreciation they crave. A fixed-income analyst will be looking for cash flow, either through dividends or debt coupon payments. A credit analyst wants to make sure you can repay your obligations. Tailor your comments to the person to whom you’re talking.

Overall, you should take on the persona of a professor. Teach people about your company. Be sure to not just be a numbers guy, though. Relate the numbers to nonfinancial metrics and build a story line. Stories are remembered. Numbers are forgotten.

Listen to Your Cassandras

As Seen in CFO Studio Magazine Q2 2017 Issue

-By Aldonna R. Ambler, CMC, CSP, The Growth Strategist

Get early warning of strategic inflection points

A company recently brought in my consultancy because the long-awaited risk management analysis was suddenly needed — right now! Media coverage about the spontaneous combustion of the lithium batteries inside Samsung’s Galaxy Note7 smartphones woke that client up. (If your product line involved fancy lithium batteries, you would want to speed up your risk analysis, too.)

Of course, we were pleased to help them pick up speed to make informed strategic decisions more quickly. But frankly, nine times out of 10, when executives feel blindsided and urgently need outside help, one of the underlying causes is that those businesses lack real CFOs, or their CFOs are too buried in the generation of reports or in analyzing the past. And the result is that the company doesn’t get early warnings of the need for a major directional shift ahead.

It seems to me that strategic inflection points no longer slowly sneak up on companies. Rapidly advancing technology, generational differences, the shrinking middle class, populism, and cyber attacks, among other factors, are pushing our clients to change.

A business is much more likely to achieve profitable accelerated growth when its CFO is expected to look and listen for symptoms of change, hints about new opportunity, warning signs of lost competitive advantage, etc. Much of the data first appears in the form of returns, product questions, or whining salespeople. And no, this reconnaissance is not just the purview of a Chief Marketing Officer (CMO). A CFO’s education and training bring different questions and increase the objectivity of analysis.

Change Your Company’s Fate

It was Intel’s late Chairman and CEO Andrew Grove who described the people on the outer fringes of a business as Cassandras (a nod to the priestess who warned ancient Troy about an upcoming attack).

The Cassandras in your organization know about programs or products veering off-track — correctible things — but if you are staring at financial reports all day, the Cassandras may not bring early-warning signs to you.

As a CFO, are you available to learn from middle managers about what does and doesn’t seem to be working the way it was expected to work? Is there any time in your schedule to interact with customers or suppliers? If you were Samsung’s CFO, would you have picked up on some of the early-warning signs conveyed by Samsung’s Cassandras?