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?

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.”

Untie the CFO’s Hands

As Seen in CFO Studio Magazine Q3 2016 Issue

COMPANIES MUST TACKLE HINDRANCES TO EXECUTING STRATEGY

One of the best ways to know if declared strategies are real or were just words is to look at what the CFO is doing a few months after the strategic planning retreat.

For example, when executives of a regional distribution company proclaim that they want rapid growth and strongly prefer organic growth over acquisition, their CFO would evaluate possible branch locations, address real estate and financing options, establish models for scaling new locations, and set standards for capacity utilization and profitability. The controller would oversee the budget process, serve as a resource to the purchasing department, generate standard reports, and be the primary steward over gross and net profit.

The overwhelming majority of CFOs I know can readily generate a logical list of priorities that flow from strategy. But there would clearly be a lot more highly successful companies if a similar overwhelming percentage of CFOs were actually executing those priorities. It’s amazing how many CFOs’ hands become tied when they don’t delegate to controllers the preparation of financial reports about the past or when they work for a CEO who assumes the CFO can’t do future-oriented thinking, projections, and problem-solving.

CFOs who focus on strategic priorities:

Are purposeful in their continuing education and seek compatibility between areas of interest, skills, and employment. It is awkward to be a CFO in a company that really should be considering acquisitions if you lack appropriate M&A experience.

Translate vision and strategy into action steps. Members of an executive team are more likely to support one another and follow through when each of them has declared where his or her focus should be to ensure success.

Provide a plan for the CEO that demonstrates and measures the ROI from adjusting the CFO’s focus.

Empower the controller to ensure the company’s consistent profitability and positive cash flow.

Allocate funds for training and/or coaching for the executive team. One of the reasons that executives and/or department heads make requests that distract a CFO from high-priority tasks is the fear or insecurity that a new strategy brings to the surface. If the CEO is not accessible, others may direct their questions and concerns to a bright CFO.

Don’t confuse the need to follow through with analysis paralysis. More than other executives, CFOs do not like to be wrong, but expending days and weeks developing precise numbers does not pay off for growth companies. Few growth strategies come with black/white clarity or ironclad guarantees of success. Make a wager on success by gauging the probability and making an educated bet, and meanwhile keep playing.

Review how they use their time on a quarterly basis.

If you aren’t focused enough on the top tasks that flow from strategy, address any doubts about the strategy, update your approach to professional development, and resolve barriers to delegation.

Copyright 2017