A CFO Can Make or Break Planning
CFO Studio Magazine, 4th Quarter 2012
By Aldonna Ambler, The Growth Strategist
Here’s a technique to test if your company should just update its tactical plan or do real strategic planning: Convene the executives and ask, “Could we triple gross revenue while only doubling operating costs?” Posing what we call the Triple/Double Option™ generates some great questions and insights. The discussion surfaces the full range of growth goals and ambition within the leadership team.
Most executives assume that the question means “triple quickly,” and the discussion will raise any concerns about ineffective or insufficient systems, limited production capacity or quality control, etc. That’s important information to hear and address through stepped-up tactical planning focused on operational improvements. The primary strategic question would be about pacing. How fast or slowly should those operational improvements be made?
Real strategic planning is clearly needed when you pose the Triple/Double Option™ and it cues the executive team to express:
- questions about whether the market is now saturated or is changing too fast;
- worry about industry consolidation;
- confusion about why customers aren’t recommending the company to others;
- frustration that the sales cycle is growing while the closing rate is shrinking;
- disagreement with or no excitement about existing strategy, priorities, plans;
- lack of confidence in leadership;
- pessimism that the company can lift up off of a stubborn plateau; and/or
- concerns about the company’s capacity to attract bright, talented employees.
CFO’s Role in Tactical Planning
A CFO typically leads the process of resource analysis and has the most access to important information. When it comes to tactical planning, even the most autocratic CEO in a family-owned, mid-sized company wants the CFO to help with resource allocation. The CFO figures out what the company can afford, if outside financing will be needed and possible, how much gross profit will be necessary, when the company will need to relocate, the timing for equity deals, departmental budgets, etc. The CFO’s most strategic contribution to tactical planning is suggesting the optimal pacing for planned improvements.
CFO’s Valuable Contribution To Strategic Planning
When real strategic planning is indicated, a capable CFO can serve as an important sounding board and advisor for other members of the executive team.
Effective CFOs help executives consider expanded options, approaches like acquisitions, private investors, an IPO, or franchising to lift off a stubborn plateau, compete more effectively, penetrate a new market, develop exciting products, or pick up speed. Feasibility analysis and determining optimum pacing for those strategies come soon enough.
Recently, we helped a client retain the services of an interim CFO. This client was experiencing behavioral symptoms (blaming, silos, passive-aggressive communication, and avoidance) that would sabotage any strategic plan. We used our Synthesis™ approach to strategic planning that features a teambuilding process running parallel to the strategic planning sessions. The Controller of this family-owned business was an in-law who contributed to the continuation of dysfunctional behavior. The interim CFO’s objective questions, capacity to imagine success, and expansive thinking helped the company envision growth and think how to leverage their strengths.
Optimizing, open-minded CFOs, unfortunately, are still not the norm. Too often, CFOs play the role of “naysayer” during strategic planning. The marketing VP starts to talk about new products or markets and the CFO is the first person to say why the company shouldn’t even consider expansion. The Chief Information Officer shares the observation that the company will need to “go to the cloud” to serve clients better and the wet-blanket CFO asks about cost too soon. Or the CFO becomes condescending when the HR director suggests more career advancement opportunities or new compensation formulas. Usually such pessimism develops when:
- CFOs are really Controllers and not trained to think strategically;
- their informed advice is discounted too often;
- they are overburdened with too much day-to-day accounting, or
- the CEO/CFO relationships push the CFOs into the negative role.
A company clearly increases its growth potential when the CFO addresses the causes of any negativity before the next round of planning. Having a bright, open-minded, optimizing, constructive CFO is a competitive advantage for any company.
Put Planning Front and Center
CFO Studio Magazine, 3rd Quarter 2012
by Aldonna Ambler, The Growth Strategist
Are you tempted to skip a round of strategic planning to save cash and avoid disruption during this extended period of uncertainty? If so, maybe you need to demand more from your company’s strategic planning process.
The irony is that businesses need clear strategy more during periods of uncertainty, not less. All it takes is a negative story on the evening news or a customer complaint or a whiney spouse to shake the confidence of employees, customers, or vendors. Folks around the company need to be reassured that the leaders are looking for opportunities, analyzing resources, updating the strategy, making adjustments, and are confident about the future of the company based on current information. How much momentum is your company losing when employees doubt, wonder, worry, pause, hold back, or start polishing their resumes? How about when customers decide to try a competitor? Or vendors change their terms?
If the folks all around your company are enthusiastic about your future, then convene to go straight into growth strategy mode. If there is still doubt or worry, build problem-solving processes into the strategic planning.
Often the CFO is the member of the executive team who can see the tangible evidence of unresolved problems, because it shows up so clearly in things like gross profit, capacity utilization, revenue/head, repeat business, average sale, employee turnover/recruitment costs, etc. but just hoarding cash and continuing to avoid problem solving won’t turn the situation around.
Sadly Out of Touch
A company recently brought us in because they were very excited about a new product they had launched earlier in the year. Their best customers had been extremely loyal for a long time. They were convinced that it was time to dive right into growth planning. But when we conducted our interviews with those same loyal, long-term customers, we learned that the overwhelming majority were actually annoyed, didn’t like the new product, felt taken for granted, and were quietly shopping the competition. The leaders of the company had absolutely no idea.
We offered to conduct more interviews and used control groups to make sure we hadn’t been misled. The customers didn’t want to hurt the feelings of the leaders of the company. They had become friends over the years. The customers were choosing sustained friendship over continued purchases. Wow! It sure was helpful that we insisted on some market research. The client had come close to refusing to let us do that step.
They are not alone! Perhaps your company is also making important decisions based on outdated information. If it’s a few years old, the data is pretty worthless in most industries. There have been dramatic changes in customer buying patterns due to financing, advances in technology, generational differences, and so many other factors.
Strategic Planning Solves Problems
We’ve noticed that many of the baby boomer CEOs and presidents of privately held midsized companies (particularly the family-owned ones) are still basing their strategies on the way things were when their best customers were first acquired. They’re hoarding cash, and hoarding cash is not the answer.
Other companies have a chronic recurring problem that has little to do with the economy. It is oft en referred to as the “elephant in the room.” You know, a revolving door in sales management, an outdated it department, too little repeat business, or few referrals. If one of those “elephants” defines your situation, maybe you, the CFO, would be more likely to embrace strategic planning if the process included more focused problem-solving. That way, strategic planning could actually make the business some money in the short run as well as guide the generation of improved results over the longer run.
Or your company could be experiencing telltale behavioral symptoms that would sabotage the success of just about any strategic plan. If you have a blaming culture, indecision, silos, low accountability, and room for excuses, the strategic process should address those issues to have a positive impact.
The point is, strategic planning can be done in a way that features parallel processes for updated information to guide important decisions, resolve chronic recurring problems, and/or replace self-sabotaging behavior. It’s more important to expect more from strategic planning now. This is not the time to avoid it. A real CEO seeks the input and involvement of the CFO during strategic planning…and so do real strategic consultants.