Leaps and Bounds

As Seen in CFO Studio Magazine Q2 2017 Issue

 

INSTINCT, FLEXIBILITY, AND PATIENCE ARE THE KEYS TO MANAGING HEAD-SPINNING GROWTH

When you’re dealing with a company that’s moving so fast you can’t even gather enough data to make an informed decision, you need to get very comfortable with your gut, according to Anthony Conte, CFO of EPAM Systems, a global provider of product-development and software-engineering solutions. The Newtown, PA–based company has been in a state of “hypergrowth” for the past decade, having grown at an average rate of 35 percent per year over the last 10 years, said Mr. Conte. “And in some years we grew as much as 50 percent.”

Mr. Conte spoke on “Re-engineering the Finance Function while Managing Hypergrowth” at an invitation-only dinner discussion attended by CFOs from Philadelphia and New Jersey–area middle market companies. The event was held recently at Morton’s The Steakhouse in Philadelphia and is part of CFO Studio’s Executive Dinner Series.

Mr. Conte explained that the term “hypergrowth” can be applied when “a company expands at an industry-exceeding rate — roughly 20-30 percent per year for an extended period of time.” In the case of EPAM, “We were a $70 million firm with a presence in five countries when we were preparing to go public 10 years ago. Today, we’re in 25 countries and generate $1.2 billion in annual revenue.”

This kind of accelerated growth is “dizzying,” he admitted, “not to mention incredibly stressful.” And it creates a lot of extra work. “It basically forces us, on a regular basis, to rethink and redefine how we do things.”

On the upside, there are many ways to not only “survive” this type of environment, but to excel at it, according to Mr. Conte, who then discussed what it takes to lead the finance team at a company that is growing like a weed.

Handling Hypergrowth

First and foremost, advised Mr. Conte, be very, very flexible. “As a company grows in scale, routine goes out the window. You have to accept that, and get used to working without a set procedure in place.”

He said this calls for a comprehensive change in approach. “As an accountant, you’re controlled and orderly, but in reality, when everything around you is moving so fast, you may need to think about different directions in which you might go to get the same result.”

In addition, your decision-making skills need to become more clinical. “You have to learn to make decisions based on very little information, and without the transparency and normal financial reporting that most companies would have,” Mr. Conte said.

This is particularly tough for “us finance types,” he said with a laugh. “We prefer to make decisions with as much data as we can get our hands on,” yet Mr. Conte pointed out that many of his moves are “gut reactions.”

Finance executives at rapidly growing companies “need to get comfortable dealing with the repercussions” of those quick decisions. “You need to be prepared that you’re going to be wrong a high percentage of the time,” he cautioned, “because when things move too fast, things get broken.”

Fix It Fast

Knowing that many decisions will be a bit off the mark, Mr. Conte continued, CFOs need to acquire an ability to take risks — and clean up after themselves. “You’re making a decision, and you know there’s a good chance you’ll be wrong, but you need to go with your gut, and then scramble to fix whatever went wrong.”

When something does go awry, “Don’t focus too much on the wrong or the ‘why.’ Figure out how to fix it, and move on.”

Mr. Conte said the emphasis must always be on propelling the business forward. “You want to learn from the past, but you don’t want to harp on the past.” He went on, “You want to understand why you made the wrong decision, and discover what you were missing so that you don’t repeat history, but you need to look forward,” because, as he pointed out, “the company is going to keep moving, regardless, so you need to patch things up and look ahead.”

“To a certain extent, you need to be MacGyver,” Mr. Conte said, recalling the 1980s television series about a secret agent who solved complex problems with the use of everyday objects. “You have to be able to take a rubber band, some duct tape, and a few pencils and build a support structure. And then continue to reinforce that structure as the company gets bigger and bigger.”

Keeping It All Together

When it becomes clear that a wrong turn has been made, “It’s critical to remain calm, cool, rational, and focused. And very, very patient with those around you.

“Everyone looks to the CFO to set the tone,” noted Mr. Conte. “Others follow my lead and react the way I do.”

That resonated with Matt Pantera, Partner at CFGI, a finance and accounting consulting firm with offices in Boston, New York, and Philadelphia, and a CFO Studio Business Development Partner. “So much falls to the CFO in terms of managing the challenges that come with hyper-expansion from both organic and inorganic growth.” He went on: “In the case of inorganic growth from an acquisition, it makes sense that a company with little or no trial balance or financial information is preferable in this environment, since there is less structure and process to be amended during integration.”

Mr. Conte acknowledged that his biggest challenge is controlling the company’s global transactional liquidity. To which Elaine Cheong, Senior Vice President of Global Commercial Banking at Bank of America Merrill Lynch, and a CFO Studio Business Development Partner, pointed out: “The ability to manage global cash efficiently can substantially reduce working capital needs and funding costs. When you have global liquidity flows, centralizing FX [foreign exchange] management can further minimize foreign currency risk exposures.”

Mr. Conte said that there are pros and cons to working at a company that is growing at the speed of sound, but he wouldn’t trade it for anything—not even for MacGyver’s prized Swiss Army knife.

The Strategic CFO

As Seen in CFO Studio Magazine Q2 2017 Issue

CONNECTING THE CFO’S FOCUS ON STRATEGY AND RISK

As keeper of the numbers and the data, the CFO is the voice of reason and realism, but is often the challenger when it comes to a company’s strategic planning. However, Ron Kasner, CFO of iCIMS, a provider of cloud-based talent acquisition solutions in Matawan, NJ, envisions an additional line in the job description: “It’s the CFO’s responsibility to help identify opportunities for growing the business.”

Mr. Kasner spoke on “Strategy and Risk: The CFO’s Role in Driving Opportunity and Protecting the Enterprise” at an invitation-only dinner discussion attended by CFOs from New Jersey–area middle market companies. The event was held recently at Community FoodBank of NJ in Hillsdale, and is part of CFO Studio’s Executive Dinner Series.

“Because CFOs are indeed so data driven,” he said, “we should be delivering information about not just our business, but about the market and whether or not it is ripe for realizing the company’s goals and vision.” He continued, “CFOs should have an understanding of the marketing opportunity and whether the projected results of the business are realistic.”

Mr. Kasner shared his strategic focus on “Presence, Portfolio, Positioning, Pricing, and People” with dinner attendees. “For example, if the current opportunity isn’t large enough, CFOs need to guide the organization to expand its presence —whether geographic, segment, or vertical.” The company will then need to “assess the existing portfolio of products and services to ensure it can serve that newly defined presence.”

Without question, Mr. Kasner added, it’s the CFO’s duty to challenge and “push back” on some parts of even the best strategic plans, “mainly because of our keen attention to risk.” But this is where, he pointed out, strategy and risk go hand-in-hand, and “certain risk factors can and should be used by the CFO to create and help drive company strategy,” thereby opening the doors to new and expanded business.

Use Risk Strategically

There are countless types of risk troubling organizations today, and any CFO worth his or her salt has set up myriad controls to guard against or mitigate these dangers. Whether the risk is in the area of finance, personnel, compliance, or data security (to name a few), “once you’ve assessed the likelihood of the risk occurring and the impact that the risk would have on your business, as well as the ongoing value of the business, you can then determine your risk tolerance,” said Mr. Kasner.

He noted that while some business leaders are born risk-takers and others aren’t, risk tolerance is often based on the size or value of the company: “A start-up with little or no revenue may take on a lot of risk because it has nothing to lose, while a larger, more established firm might err on the side of caution and play things safe.” Alternatively, “larger organizations with a more established infrastructure may be better equipped to mitigate risks, thus lowering the likelihood of occurrence or impact, and thereby enabling the organization to take on what other organizations would otherwise deem a higher risk.”

In either case, “it’s now up to the CFO to ‘manage’ that risk,” said Mr. Kasner. Assuming all the necessary mitigating safeguards are in place, “the CFO should look to use that risk strategically to the company’s advantage.”

Mr. Kasner explained: “If it’s been decided that my company is going to have a greater risk tolerance, we may be willing to bring in certain types of customers that the competition might shy away from because they are viewed as too risky. On the flip side, if I have excellent controls around my risk, a customer might consider my company more secure, and decide to do business with me instead of my competitors.”

CFO Studio Business Development Partner Steve Peckman, a Vice President at Yorktel, an Eatontown, NJ–based provider of unified communications & collaboration, cloud, and video managed services, found Mr. Kasner’s take on the CFO as strategist enlightening. “As the only professional in the room who wasn’t a CFO, I was inspired to hear that the strategy and risk- management tactics laid out over the course of the evening correlated with the ways my team and I manage our business unit — as a microcosm of the larger company.”

Ultimately, it’s the CEO who has the vision for the direction of the company, “but the CFO should be contributing data about both the business and the market to help make accurate and strategic decisions,” Mr. Kasner pointed out.

“It’s our job,” he added, “to establish the framework for strategy and risk, and then use and contribute to that framework to help guide company strategy.”

Financial Makeover 101

As Seen in CFO Studio Magazine Q2 2017 Issue

 

GETTING THESE GLITCHES FIXED CAN YIELD A HIGHY EFFICIENT FINANCE OPERATION

They say “there’s always room for improvement,” and this holds true even in the case of successful businesses that begin and end every fiscal year in the black— large, brand-name companies among them. “While there are many tight ships in the sea, it’s not uncommon to find some finance departments working with nonstandard and manual processes and controls, coupled with suboptimal systems and tools,” according to Alison Cornell, a senior-level Financial Executive and experienced business leader.

Ms. Cornell spoke on “Driving Finance Transformation—Higher Performance, Better Intelligence, Greater Confidence” at an invitation-only dinner discussion attended by CFOs from New York–area world-class companies. The event was held recently at Maloney & Porcelli in New York City, and is part of CFO Studio’s Executive Dinner Series.

Calling on her time spent in the C-suite at several multibillion-dollar companies, Ms. Cornell developed a multifaceted finance transformation approach, and she shared its key points with dinner attendees.

The Long View

“Before you can transform a subpar working environment into a high-functioning financial engine, you need to envision what you want your future to look like,” said Ms. Cornell. She suggested executives direct their focus to the most rudimentary—yet crucial—processes and controls that make up the backbone of their finance departments.

“I’ve seen a broad array of processes in my career,” she said, “and they’ve ranged from those that were tight and automated to ones that were ill-defined, nonstandard, mostly manual, and local.” In the case of the latter, “you often find calculations performed outside the system in Excel spreadsheets, with many of the controls also manual,” and the associated systems and tools “suboptimal and incomplete.”

Ms. Cornell said this often adds up to an unnecessarily high level of resources and complexity “with each region, and sometimes country, having their own staff, process, and code set.”

As part of her transformation approach, Ms. Cornell recommends that processes be standardized, simplified, globalized, and automated. “Beyond that, these key processes should be performed by the fewest number of people in the fewest places,” she added. Controls should also be automated instead of manual, thereby leveraging system capability. “If the system can do it, why not have the system do it?” she asked attendees.

Ms. Cornell said such basic and fundamental changes would result in a “consolidated, de-layered, and lower-cost organizational structure.” Audit fees would go down and resources could be reduced or redeployed to more value-added work. “In the end, finance teams would have the freedom to spend more time on thoughtful and insightful analysis that’s based on drivers.” Plus, mechanizing processes and controls also takes a great deal of the potential for human error out of the equation, and “that’s a huge positive,” she said.

All Aboard

While Ms. Cornell’s formula for finance transformation made sense to dinner attendees, many wondered how to broach the subject in cases where management is resistant to change. She said deciding whom to involve in the buy-in process tends to be closely tied to the culture of the organization. “Is it a command-and-control culture, or is it more relationship-based?” she asked, pointing out that “processes usually adapt to whatever the culture is at the company.”

Either way, it became abundantly clear from the dinner conversation that “today’s CFOs are embracing finance transformation as a catalyst to drive change and add strategic value to their businesses,” noted CFO Studio Business Development Partner Chris Nyers, a Partner at CFGI, a finance and accounting consulting firm with offices in Boston, New York, and Philadelphia.

He said it also was clear that there is no “one-size-fits-all” model to create a more effective and cost-efficient finance function. “Whether it be through the standardization of processes across geographies, integration of systems, leveraging of shared services, or the elimination of inefficient, manually intensive processes, each organization seemed prepared to approach their challenges in a different and unique way.”

To that end, Ms. Cornell offered a recommendation: “Start with a clean sheet of paper, and build processes that are best-in-class, instead of trying to fix or tweak existing suboptimal processes.” She said this approach results in the need for people to “think and act differently,” which is the first step toward a true transformation, be it financial or otherwise.

Copyright 2017