As Seen in CFO Studio Magazine Q1 2017 Issue
THE CFO CAN BE THE DRIVING FORCE BEHIND COMPANY ALIGNMENT, EVEN WHEN ONE AREA OUTPERFORMS ANOTHER
Keeping everyone in an organization on the same page with all eyes on a common prize can be quite an undertaking. But it’s an even heftier effort when running a business with two similar, but very distinct, high-end products that are directed toward separate consumer markets with similar characteristics, but varying demands. “This has been a challenge at every organization I’ve ever worked for,” says David Chambers, Vice President Finance and CFO of Jaguar Land Rover, North America.
Mr. Chambers, who appeared in the cover story of the Q3 2016 issue of CFO Studio magazine, spoke on “Driving Growth: Two Luxury Brands at a Time!” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Blue Morel in Morristown. CFOs from select New Jersey–area companies attended the invitation-only dinner.
Mr. Chambers began the discussion with a rhetorical question: “How do you manage growth vs. profitability with two luxury brands that could be somewhat divergent in terms of their targets and performance?” Interviewed later, Mr. Chambers said, “There was a pretty strong view in the room that margin comes first, and you should always manage to profitability instead of volume at any expense.”
Although this “refusal to sacrifice profitability” was the answer he expected from his fellow CFOs, Mr. Chambers noted that it often results in ongoing tensions within an operating organization. “The sales guys are going to have numbers they’re trying to hit, while the finance folks are attempting to keep some level of credibility in the system.”
In other words, he explained, “There are pressures in the system to hit sales, but at the end of the day, it’s your job as CFO to put the right data in front of people, and ensure that that data is discussed so that only the best sales decisions are made.”
And that’s why “things naturally get tense when you say, ‘Yeah, I know you want to do this, but it may not be the best thing for us to do,’ ” he acknowledged.
Along similar lines, the group then had a question for him: “They asked me about my process for evaluating the potential of a product, and how resources are allocated,” recalled Mr. Chambers. “I explained how we weigh the cost of what we’re willing to put into the product vs. the revenue we think we can get out of it. We then consider whether or not that generates an acceptable margin for us.”
Law and Order
The discussion then naturally morphed into an examination of how to keep discipline and control in an organization if there is rapid growth in one area, but not the other. “We have seen a tremendous amount of growth with Land Rover, and although we’re preparing for an uptick in Jaguar sales with two new models on the road, we’d been losing people out of that sales funnel,” said Mr. Chambers.
So about three years ago, Mr. Chambers and his CEO adopted what he referred to as “a new system to help us manage at the rate we’ve been growing.” He described it to the group as an organization within the organization. “We call it the executive review board, and it’s composed of the CEO, CFO, and the heads of marketing, sales, operations, HR, and customer service.” All major decisions go through that committee, he said, which “allows us to have an aligned view, and a fully vetted approach in terms of how we allocate our resources.”
In addition, Mr. Chambers noted, the system prevents a couple of things: “It avoids moves outside of the process, which tend to occur as you’re growing.” And, he added, it presents a very disciplined and unified approach within the organization. “It allows you to exert a level of control and discipline in the company without being too bureaucratic, because once something’s come through this organization, and it’s been reviewed and approved, it moves forward. There’s no further discussion.”
Mr. Chambers said the new process has been “highly successful” because it’s forced that “alignment” within the company.
This resonated with Jacob Buchanan, Senior Manager, Private Company Services at PwC, and a CFO Studio Business Development Partner, who noted that, “It can be very difficult to achieve organizational alignment to a goal across functional areas of management.” He continued, “For example, marketing and finance may have the same overall goal; however, aligning on the path to reach that goal requires strategic thinking.”
Mr. Chambers responded by noting that such “organizational alignment to a goal” can be accomplished in one of two ways: “You can either have a CEO that’s very strong in forcing that, or you can come up with your own process working with your CEO and heads of operations to put something in place that everyone will align upon.” This, he said, has been the key at Jaguar Land Rover, North America. “It’s the big difference in how we’ve tried to manage the brands because they sit in two different positions.”
Mr. Chambers added, “It’s all about having the right parties in the room and then having the discussions.” He pointed out that everyone gets a voice in the process, and then, once a decision is made, “it’s not about whether you like it or not, it’s about execution, plain and simple.” And an outcome reached by that method should go a long way, he said, toward keeping everyone in the company in the fast lane to success.