Interview with Barry Lederman
Interviewer: Andrew Zezas
Following is the transcript of a CFO Studio Studio Interview between Andrew Zezas of New Jersey based Real Estate Strategies Corporation and finance executive, Barry Lederman, CFO of Wedgewood Pharmacy.
Visit www.cfostudio.com to read about this interview and to watch the entire on-camera interview.
Driving Value Creation
Zezas: This is CFO Studio and I am your host Andrew Zezas. I am joined today by Mr. Barry Lederman, CFO of Wedgewood Pharmacy located in Southern NJ. Mr. Lederman’s background includes having an undergraduate degree in electrical engineering and an MBA in Finance and Operations Management from the University of Rochester. He is an actively licensed CPA in New Jersey and New York and has industry experience that includes automotive, public accounting and pharmaceuticals for such companies as IBM, General Motors, PricewaterhouseCoopers, Hoffmann LaRoche, Danaher Corporation, Nikomed and others. He’s held senior level positions both domestically and globally. He is here today to talk to us about “Driving Value Creation.” Barry, it is wonderful to have you here on CFO Studio.
Lederman: It’s great to be here Andy.
Zezas: Barry, we are here today to talk about value creation, so before we get into the details, give me a foundational explanation. What is value creation?
Lederman: Well, rather simply, driving value and getting value creation is having your revenue growth exceed your expense growth. If you think about that, it’s rather simple. Now I am sure you heard the statement or the saying “Cash is King.”
Lederman: Imagine “Cash is King” over time. If you are generating cash and cash flows, and you are looking at this over time and you are growing it, that’s what value creation is fundamentally about.
Zezas: Okay, makes perfect sense to me. Is value creation viewed the same way by CFOs in all different kinds of companies?
Lederman: That’s a good point. In a lot of companies, depending on where they are in the life cycle, it isn’t the same. So, some companies that are start-ups, they are generating more spending then they are actually generating revenue in profits. So, a start-up may have a different view initially, but over time, it’s important that they are generating more revenue above their expenses. But a company that is more mature, that’s been in existence, and that’s got products that are out there, they should be having a revenue growth above their expense growth. So it is key.
Zezas: Okay, so it is key. Now, I would imagine that a CFO or a company itself would look at value creation very differently depending upon size, evolution, industry, ultimate objectives, exit strategy and so on. It’s got to be different for everyone.
Lederman: It is a little bit different for everyone, but the fundamentals are typically the same. So when you come down to it, there are key points that you really have to think about in value creation. I’d say first, I like to think about, you know, as a kid I had a train growing up, and as a conductor of this train, you want to think about a couple elements, one of them being the platform. You want a stable platform to work off of and trains, especially with lots of the cars on it, you get momentum. The more cars, the more mass, you get the speed going up, you get the velocity, and you get a nice momentum.
Lederman: And then the last part is continuous improvement. You have a little train that everyone is always trying to fix up and do different things on the train.
Zezas: Ok, that’s a great analogy. I had model trains myself. In most companies, who should be driving value creation?
Lederman: In most companies, where I would say the role is very key, the role of the CFO’s spot, a lot of companies mid-size, large or small it doesn’t matter, the CFO should be at the helm of this. If you want to call it, they should be the conductor of the train.
Zezas: Okay, why the CFO in particular?
Lederman: Well the CFO, the vantage point of the information, typically CFOs in most organizations are involved across all aspects. That vantage point is key. With that, it gives them an opportunity to really see what’s coming, what’s happening, and tell people when they maybe are off course or derailed.
Zezas: Okay, so let’s stay with the trains. So, the CFO’s a conductor, and then all the cars represent the various components of management, so you got IT in there, you’ve got sales, manufacturing, logistics, HR and every other part of the management team. Is that the correct approach?
Lederman: Absolutely, the key functions are critical.
Zezas: So then, where the CFO is conductor, and the rest is management team, how does management commitment play a role in value creation?
Lederman: That’s a good point. With management and management commitment, you can imagine the alignment of these cars in the train. Management has to be aligned, it has to be pointed in the same direction. If they are pointed in the same direction and they have the same focus, it works.
Zezas: On the same track.
Lederman: On the same track.
Zezas: So, the commitment is key for all the various pieces of management. Reporting, I got to believe that that’s an important component. How does reporting play a role in value creation, in the process?
Lederman: Well, when it comes to reporting as a finance executive, many finance executives love reporting. They generate reports internally and externally. Now all of these reports you have, they have to be focused, you have to focus really on key metrics, what really matters, and you also have to have a balance. Reporting happens over time, it could be daily, weekly, monthly, quarterly, annually, whatever it may be, but the focus of it, the content of it, the balance of it, whether it is financial or non-financial, things like quality matter, customer, employees, all of this matters. So, the reporting is very important.
Zezas: So I would imagine, not just the physical act of reporting but establishing what has to be reporting on, how it will be reported and the frequency with which it will be reported becomes a very important component of greater value.
Lederman: Absolutely. When it comes to it, you talk about momentum, you need to have alignment and you need discipline. So, consistency and persistency, report on those same topics, the ones that are really driving value, and then you need focus. If everything is being reported, you don’t even know what to focus on. You have to make sure you know exactly what to focus on.
Zezas: So, the over reporting could be a bad thing.
Zezas: Okay. And you said consistency and persistency? And does the method of reporting matter? I should say the vehicle of reporting matter. Does it matter if it is oral, written, emailed, or otherwise?
Lederman: I think in organizations, you can’t over communicate. Everybody talks about not enough communication. When you meet with people, this is one way to communicate. When you send out a report, that’s another way. When you have meetings, if you have, if you want to call it a town hall, with a lot of the organization, these are all different vehicles to get the word out.
Zezas: Understood, okay that makes sense to me. How deeply into an organization should the value creation process be pushed? Should it just remain with the management team?
Lederman: That’s a good point. When I think about a management team in an organization, this is the vertical. This is the top down pushing value creation, getting value creation concepts into an organization. If you want to push it in deeply, you need people throughout a function, throughout an area. And if I think about finance, there are a lot of people in finance organizations. This is the horizontal. If you have everyone working both vertically and horizontally and get them all aligned in the same topic, you could imagine the amount of momentum you would have. All of these cars, all of the people in the cars, you have lots of mass, going in the same direction at a good velocity and the momentum is tremendous.
Zezas: So, we got to get people out of the train station and into the cars.
Lederman: Absolutely. If you are not on the train, you’re left at the platform, and you are left behind. You don’t want to be left at the platform when an organization is going in a clear direction.
Zezas: Excellent, excellent point. Okay, so then tell me how a good CFO keeps a company focused on value creation over an extended time period.
Lederman: I think that’s key. A great CFO will challenge an organization. I look at it as continuous improvement. When you continuously press an organization to do something better year after year, focusing on improving something, you get different results. If you are not pressing the organization and the CFO is not driving this into the organization “you can do this better”, you don’t get a different result. And when you ask a person in an organization “Can you do this 5% better, 10% better ?”, it’s kind of hard for them to argue that they can’t get it a little bit better if they do it again. The more practice the better the result.
Zezas: Is there a train analogy to this?
Lederman: Absolutely. There is always a train analogy.
Zezas: What is it?
Lederman: You fix the tracks. You can always fine tune it. If you really get everything driving well and you think about improving the process and momentum, if everyone is going in the same direction, going the same velocity, you’re not stepping on the pedal, pushing it down and pulling it back. The cars are not jostling around and that for me is absolutely critical. If you want to drive value creation and you want it to be sustainable, you have to think not only the platform, but the momentum. You have to think about duration, the continuous improvement type of philosophy.
Zezas: Wow. I love the train analogy and it makes perfect sense. We have time for one more question to wrap this up. The idea of value creation, is this just a concept, is it just a theory, or does it actually work?
Lederman: Well, value creation is a concept. This is not just a simple concept. This is something that many finance executives that took the helm as the conductor of this train. They got it to work. You can see companies that are very successful driving value for their shareholders, driving it over for very long periods of time. So it is possible, it has been done, it can be done and if you do it the right way, it is sustainable.
Zezas: So, value creation as proven method of success.
Lederman: Absolutely proven. There are many people, many very successful CFOs smarter than myself that get it right.
Zezas: Barry, I appreciate your thoughts. This has been very interesting, a very telling concept and a very interesting interview. I want to thank you for joining us on CFO Studio and I invite you to come see us again sometime.
Lederman: Thanks Andy. I appreciate it.
Zezas: This has been great. This is Andrew Zezas, your host at CFO Studio with Barry Lederman, saying thank you very much for watching and we will see you again.