Transitioning From Larger to Smaller Organizations

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CFO Studio Magazine, 3rd Quarter 2012
By Damian Finio, Chief Financial Officer of West-Ward Pharmaceuticals

WHAT TO BRING AND WHAT TO LEAVE BEHIND

My recent career moves have taken me backwards in terms of company size and revenue, yet provided me with fantastic opportunities for design and implementation of people, processes and systems. I initiated each of these career moves. However, with larger companies continuing to reduce the size of their finance departments, it’s a trend that some of you may be forced to encounter yourself or for the people you recruit.

I benefited from sophisticated operations at AstraZeneca ($34B in revenues), transitioned to Daiichi Sankyo ($12B in revenues), and now find myself at HIKMA ($1B in revenues), wondering what knowledge and experience I should bring with me and what is better left behind.

While knowledge and experience get you the job, it is oft en this same knowledge and experience that can leave you frustrated and disappointed if you don’t adjust your expectations to your new environment. Smaller companies simply do not have the means to invest in the people, processes, and systems that their larger competitors do, yet the complexity of their business models is arguably comparable.

All of the companies where I worked are multinational firms with headquarters outside of the U.S. competing in the regulated pharmaceutical industry. Each uses SAP, has manufacturing facilities around the world, sells in multiple countries, and employs thousands of people with varying cultural backgrounds and skill sets. Yet the quality and quantity of finance staff, maturity of financial processes, and success in exploiting systems varies. There are more than likely a host of reasons why this is the case, but surely some component of this dynamic must be attributable to the size of the organization.

So, what does a finance leader bring and what is better left behind?

 

Tracking Talent

Regardless of an organization’s size, you can attract and retain top talent. With the same budget, you could assemble a small staff of talented individuals or a large staff of not-so-talented individuals. It’s up to you to determine which model fits best with your new organization, but in my experience, quality is more important than quantity when it comes to staff.

Although talent management may appear as something to do when/if you find the time, it is absolutely critical to regularly step away from month ends, management meetings, and so on, to assess the talent of your team. Even if you lack the support of a strong HR organization, finance managers can easily gain access to tools used to conduct robust talent management reviews. Over time, if you clearly articulate your expectations, establish competencies, set clear objectives, and take action with your high performers and lowest performers, your finance organization will improve. Talent management is an area where you are well-served bringing with you the leadership skills you honed and talent processes you implemented while managing larger teams of people. Leave behind the idea that you will have clearly defined roles and responsibilities for each individual; your organization is smaller. However, if you attract and retain the right talent, you can allow the lines to be a bit blurry.

In terms of processes, the most difficult challenge is deciding where to start. The biggest mistake you can make is trying to improve all financial processes at once. Recognize they’ll never be as robust at a small organization as what

you experienced at a large organization. Identify and prioritize improvements to be made in budgeting, purchase-to pay, and order-to-cash processes. But, rather than going after the low-hanging fruit — automating the purchase order approval process, moving more vendors on to EDI — focus on holding non-finance managers accountable for their budgets. It’s your job to ensure the budget management reports that are necessary to support them exist.

Before doing this, gauge the level of awareness around the company’s financial targets. Then review how the organization allocates expense budgets. Dissect the company’s expenses, sort out who controls what, align the management reports you distribute accordingly, and then hold people accountable for their part of the budget. Once you have the entire organization looking after the expense base for you, you can spend time bringing the day-to-day financial processes into 2012. Pay as much as you can electronically, improve payment terms with vendors, and collect and apply your cash quickly. Bring your business acumen and project-management skills with you to get the organization headed in the right direction. Avoid trying to automate the day-to-day financial processes right away. They’ve been manual for a while, so a minor delay won’t hurt.

 

Strengthening the System

Upgrading systems is by far the biggest challenge. You are most likely up against a constrained capital budget and an under-resourced IT department, and these are not likely to be entirely in your power to fi x. Patience is the key. Systems don’t improve overnight, but once you commit to either a new system or to improving your existing system, don’t underestimate the time and effort it takes to do it right.

To ensure that the team has a vested interest in a successful implementation, you need to be willing to offer up some of your most talented permanent staffers to work full time on the system implementation team. And, to make sure you don’t burn them out in the process, backfill, role with a full-time, competent contractor. This will enable them to focus 100 percent of their attention on the project.

Bring with you the vision gained from having worked in an organization where the systems were integrated and fine-tuned to meet the needs of the business. Leave behind the notion that improving or implementing systems is someone else’s concern — it’s yours.

When making the decision to move to a smaller organization, do what you can during the interview process to assess where the “pain” resides in the current finance department. Once determined, this will help you decide whether or not your bigger-company skills will be of value to your new, smaller organization. And, when moving from a larger organization to a smaller organization, bring with you the knowledge and experience you’ve gained over the years. After all, that’s why you were hired.

Leave behind the expectation that when you arrive you’ll find a completely talented and motivated staff, using world class systems, overseeing mature financial processes. Your new, smaller organization simply doesn’t have the same level of resources. And, in reality, what you became accustomed to at the larger organization is probably more than they need at the smaller organization.

If you move to a small organization, keep in mind that trying to perfect everything will frustrate you and drain your company’s resources unnecessarily. There’s a word for perfection in business: inefficiency. Bring with you a “fit for purpose” outlook and leave the perfectionist behind.

Download the Article in PDF | Author’s CFO Studio Page


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Leading in a Period of Economic Uncertainty

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CFO Studio Magazine, 3rd Quarter 2012
Interview By Andrew Zezas 


Global challenges from Europe and China and volatility in the economy overall have presented plenty of difficulties to financial executives. But by embracing the right strategies, a CFO is able to mitigate risk while positioning the company for greater growth in the long run. David Drillock, Vice President and CFO of Woodland Park, NJ–based Cytec Industries, a specialty chemicals and materials manufacturer serving diverse markets including aerospace, mining, and general industrial, has worked to ensure his company can thrive during a time of economic uncertainty.

He sat down with Andrew Zezas, host of CFO Studio and CEO of Somerset, NJ–based Real Estate Strategies Corporation, to discuss how the role of CFO has broadened and deepened in recent years, and why an economic downturn is no excuse to curtail innovative thinking. Below are highlights from their conversation.

 

ANDREW ZEZAS: Dave, it’s great to have you here on CFO Studio.

 

DAVID DRILLOCK: It’s great to be here, Andy, thank you.

 

Dave, we are talking about uncertain economics and also about leadership, which are very important components of business today. Share with me, from a global perspective, what economic issues concern you.

 

DRILLOCK: Sure, thank you. Everybody knows what’s going on in Europe with the debt crisis and how they are in a recession already. We can’t escape the news or radio or TV talking about it. We also have a slowdown in China, and while that economy was a great engine of the world for many years, the impact of that downturn could lead to a slowdown in this country.

So, those are the things that the CFO today should be aware of, and quite frankly, needs to make sure the company is prepared to deal with in the uncertain times ahead.

 

There is a lot of uncertainty, and there’s a lot of diverging information that’s going off in a lot of different directions. A lot of very smart people are trying to make sense of it.

 

DRILLOCK: Yes, that is correct. Flexibility is the key.

 

What’s your company been doing to minimize risk and reduce risk, but not depress growth?

 

DRILLOCK: I think the first thing a CFO needs to do is look at the balance sheet: Do they have proper liquidity? working capital at the right levels? Also, look at the infrastructure of the company. If there is a downturn, look at the different scenarios and what can be done. You want to make sure that you have liquidity to keep funding the things you want to do. And cut back on the things that you know are sort of temporary that don’t need to get done right away, and push them off. So, I think through proper contingency planning and some of the things like that, you can minimize risk and also take into account what might happen to your customers and vendors.

For instance: working capital management. I want to know that my key vendors are viable financially.

So, it doesn’t hurt to do some credit checks on them like you would do with a good customer. The same thing with my customers: I don’t want to be the bank during a crisis. If I am shipping to them on time and on schedule, then I want to make sure I am being paid on time. Also, you want to make sure you are building the right products, that you are not letting dollars sit in inventory, because that’s not doing anybody any good.

 

So, earlier in our conversation you said something about contingency planning. Do you mean in case there is a _ re, how do we put out the fire?

 

DRILLOCK: I think contingency planning goes both ways. You want to plan for the worst and sort of hope for the best, but you also want to plan if there is an upturn. What if there’s not a downturn and things start to pick up? You don’t want to cut back so hard that when the economy does pick up, your company is not prepared to meet that demand.

 

So contingency planning in both directions?

 

DRILLOCK: It goes both ways.

 

Something I heard you talk about is that at a time when most CFOs and business executives in general are concerned about battening down the hatches and protecting what they have, you’re using innovation as a means of protecting growth. Elaborate on that.

 

DRILLOCK: I think one of the mistakes companies make during downturns is that they start cutting out any innovation and marketing that goes on. And then when things turn around, those who kept doing those things had the edge. So, what you want to do is cut down in such a way that doesn’t stop the innovation or the enthusiasm of employees that want to be part of a growth company.

At the end of the day, every company has to grow and generate good cash flow to go forward. The CFO has to make sure that you don’t overreact to one extreme and miss the other when the growth comes back.

 

Tell me, Dave, your thoughts about the CFO’s role in that realm, in leading a company through this very, very confusing period.

 

DRILLOCK: I think what a CFO can do through this type of period is, first of all, they look at the big-picture view of what’s going on in the economy-“Here’s what I see, here’s what the data is showing, here’s the metrics, and here’s the leading indicators”-but they can also look at what is going on in the company to make sure they have the right metrics.

There are a lot of techniques today that are out there, such as Six Sigma and lean manufacturing, that you can even use on your administrative processes and global processes that make a company more efficient. A CFO, because of the world he is in, can bring a lot of things to the table in making sure these things are being utilized throughout the company.

 

I am hearing a combination of both backward- and forward-looking. The traditional CFO role was historic and was reporting. It kind of stopped at today, but I am hearing innovation, I’m hearing forward-looking.

 

DRILLOCK:  The CFO’s role is really changing today. You are going from really just being a compliance master to one where you’ve got to go out there and really understand what’s going on in the market. You’ve got to be a strategic thinker and you’ve got to be a partner with the CEO.

It’s not just sitting in the office, but getting out there and understanding what’s going on, being that partner to the rest of the executive team at the company, and giving them those insights after that. You really have to understand what’s going on in the business, and I think those are the ones that are more successful.

 

So, partnership in a lot of different directions, not just with the CEO, but with the rest of the executive team as well?

 

DRILLOCK: That’s correct. You have to get out there and relate to the hourly employee as well as you do to the C-suite executives.

 

That makes perfect sense. Dave, we are very interested in understanding how CFOs can become influential. What steps can a CFO take to have the greatest positive influence over the company, their industry, or the finance community?

 

DRILLOCK: One thing is they can’t be too insular. They can’t just be around a company. They have to get out there and network, whether it’s through trade associations, CFO Studio like this, getting online, or chatting with other CFOs in this industry. But I think what CFOs can do to really be influential, not just in their company, but in their industry, is to just get out and see what else is out there. I do not have the best ideas out there, but I want to know I’m smart enough or hope I’m smart enough to know who to go to in order to get those ideas.

 

I have time for one last question before we sign off, and it is not a business question. When you’re not CFO, when you take your CFO hat off, what do you do with your time?

 

DRILLOCK: Well, I am lucky enough to have a small farm in Long Valley, NJ. I have a couple of horses, some donkeys, some chickens, grow hay. When I want to get myself completely away from what I do, I go out to that farm and just enjoy the great land and just enjoy nature.

 

A far cry from being a finance executive.

 

DRILLOCK: That’s correct.

 

Dave, this has been fantastic. I truly appreciate you joining us here on CFO Studio. I hope you’ll come back and see us again.

 

DRILLOCK: I will. I enjoyed it myself. Thank you very much.

 

Building on Values

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CFO Studio Magazine, 3rd Quarter 2012

By Julie Barker

A GOOD CFO WORKS FOR INVESTORS, EMPLOYEES, CUSTOMERS AND ALSO SOCIETY

When Barry Rowan talks business, he talks about responsible value creation.

In conversation, you might hear him say business serves society by creating opportunities for people at the bottom of the pyramid. For him, value cannot be divorced from values.  The two are as closely entwined as the why and the how that confront any decision-maker in any business question.

“Work should provide an opportunity for people to express their innate gifts and talents,” he says, a pronouncement that can sound a little old-fashioned in our cynical age. But Rowan, who has been in the business world for more than 30 years, with the titles CEO, CFO, and Treasurer, has a track record in telecom and tech businesses that proves he does not have his head in the clouds.

At his previous job, CFO of Nextel Partners, he arrived when the company’s stock was trading for a low $7–$8 a share, and set to work growing the valuation of the company. Three years later, in June 2006, the stock price was up to $28.50 per share. He took his leave after the company was sold to take a “purposeful pause” in his career, though he continued to contribute his knowledge while sitting on boards and giving back to the community. He then joined Vonage Holdings Corp. in March 2010.

Rowan operates in a rapidly changing world from a foundation of rock-solid principles. In a time when lack of trust in business is widespread _ ethics questions having been raised over the actions of Apple (child labor), BP (disregard for employees’ lives), Barclays Bank (rate manipulation), Countrywide Finance (influence peddling), Morgan Stanley (a skewed earnings forecast for Facebook), Monsanto (environmental damage), and many other companies _ his values-based leadership is refreshing and his conversation provides perspective for anyone searching for meaning in their work. But Rowan’s not just a nice guy who makes character central to his work, he loves business challenges and has an impressive track record of growing and turning around companies. In the crucible of business, he has arrived at a philosophy that other CFOs should find provocative _ maybe even worth emulating.

 

Importance of Performing Profitably

Rowan, whose title is Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer at Vonage, was brought in to help guide an operational, financial, and reputational turnaround at the Holmdel, NJ–based company. He was drawn to the challenge. Result: The company’s Q1 financials show revenue of $215.9 million, and after five consecutive quarters posting EBITDA of $40 million or better, that measure slid slightly to $31.8 million in Q1, as the company warned investors would happen when it turned to investing in strategic growth initiatives during 2012.

“The bottom line has grown about $200 million from a negative $47 million prior to the turnaround to $168 million in EBITDA last year,” says Rowan. Vonage achieved a similar $200 million improvement in net income and free cash flow, driven by the two comprehensive refinancings that Rowan led.

Now that the bottom line is healthy, Vonage is working on strengthening a relatively flat top line (see sidebar, “Finding Growth During Rapid Change”). One of the first voice over internet protocol (VoIP) providers, Vonage took advantage of a breakthrough technology and the lack of regulatory constraints hindering the existing telecoms but absent in an internet environment. But the company stumbled in the process and almost went bankrupt. With its current growth strategy, Vonage is looking at leveraging its existing competencies and using its old tactic, price disruption. “That’s been Vonage’s heritage,” Rowan says, using disruptive technologies like delivering phone service over broadband to dramatically lower consumer costs in large existing markets. Now the company is looking to disrupt the major telecoms’ income from international long distance, text messaging, and roaming with its digital voice services.

Rowan is immensely pleased by the company’s turnaround for the obvious reasons, but also because he believes that the primary purpose of business is to serve society through what he calls “responsible value creation.” This is not the same as saying the purpose of business is to make money. In an interview with Ethix, a business magazine focusing on technology and ethics, Rowan said, “I am not saying that having more money is all we need to make the world a better place. That’s simply not true, and to say it is would be promoting a hollow materialism that leaves many wealthy people aching for more.” But it is through business – originally trade, then manufacturing, inventing, and investing _ that people without goods to trade or land to farm can earn a livable wage.

Speaking to CFO Studio Magazine, Rowan says, “Business is the only institution that creates economic value. Every other institution distributes it.” For customers, the result is goods and services at a reasonable cost; for employees, the result is a positive environment where they can grow their skills and steady, healthy paychecks (see sidebar, “How Business Serves Society”).

 

Defining the CFO’s Role

As a steward and a strategist, the CFO is the individual in the company charged with responsible value creation and telling the truth. In order to stay focused on the main goal, “performing profitably,” Rowan suggests a test: “At any moment of every day can I make a connection between what I’m doing in this moment and a purpose for business that connects to my purpose in life, which includes contributing to a better society?”

And in order to keep others from inflating figures or failing to report negatives (for instance, when it comes to SEC _ lings), a CFO might remind the people in the finance and legal departments who are preparing the documents that investors are making multi-million dollar decisions based on the accuracy of those numbers. “I think people take their responsibility seriously if you raise the bar for them,” he says.

Rowan believes that it is up to the CFO to be the truth teller. If senior leadership or a board of directors is making powerful arguments for a course that seems dangerous or wrong, the CFO’s role is to “present the information, the numbers, the data in a way that portrays the realities of how the business is doing and where it’s going.” He speaks of bringing people to “see the story that is in the numbers,” and cites Jim Collins, whose book Good to Great advocates “facing the brutal reality” in order to make the hard decisions that ultimately make good companies great.

 

Making Hard Choices

At a previous job, Rowan was running a startup in South America (he has done three startups and three turnarounds in his career). This was the only job he has had at which he was not successful and it clearly bothers him that he was not able to save the business. It was a “massive startup where we raised $2.5 billion and hired 4,000 people in two years to build a communications system in Brazil.” For many reasons, the company foundered, requiring him to move to Brazil and in the role of CEO lay off 1,500 of the workers. “It was by far the hardest thing I’ve had to do professionally.”

In these times when most companies are not appraised primarily for the products and services they provide but as investment opportunities, CFOs frequently have to argue for reduced headcount. So how would he reconcile that reality with his understanding of business as contributing to a better society? Rowan says that in his Brazil disaster, he came to realize that it was the time for drastic action, without which the company was going to go bankrupt, “so I viewed my job there as saving 2,500 jobs as much as eliminating 1,500.” Additionally, he says, the layoff s were handled with sensitivity, and the workers who were let go were offered an outplacement service to try to get back into the workforce. “We tried to be sensitive to the people and to treat them with the dignity they deserved.”

When a company needs shoring up and hard choices have to be made, he says, “that work is not fun, but there is a sense of satisfaction at the end of the day from doing what I believe is the right thing.” He also finds solace in “accomplishing significant results with people I enjoy and respect … Not doing it alone [but] being connected with other people as we have to make the inevitable challenging choices in these senior leadership roles.”

 

Guiding and Mentoring Others

Early in Rowan’s career, he struggled to find a sense of what his life and his work meant. He admits that if he hadn’t been able to come to an understanding of what he was doing in life and why he was doing it, an understanding that brought meaning to his work, he would have quit corporate America. “It was too painful to me not to be able to make those connections about purpose.”

He believes that a company has a role in helping employees who are wrestling with the question of what they should be doing and whether what they’re doing really matters. Vonage has a mentoring program, and Rowan has spoken at town hall meetings and recently spoke to employees at a brown bag lunch about “connecting our heads and our hearts.”

He enjoys investing in the younger generation, both inside and outside the company.

“I don’t call these mentoring relationships but holistic friendships,” he says, because mentoring implies that it is a connection that goes in one direction and “I get at least as much from those relationships as the young people get from me.” Tied to this reluctance is his belief that he is still learning about life and growing in understanding.

Throughout his years of corporate life, Barry Rowan has pursued answers to existential questions. One of the most exciting realizations he has had is relevant for all of us: that satisfaction and joy can be derived from “using our careers to shape society [even as we are] being shaped by our careers.” Connecting his work boosting the value of an asset to his efforts ameliorating the lives of people in poorer areas is a significant step, but only one of many on his life’s journey.

Download the Article in PDF | Barry Rowan’s CFO Studio Page


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