VideoIn the first two business days of 1998, Timothy V. Wolf, senior vice president and CFO of Coors Brewing Co., gave five presentations to five different groups within his finance organization. He had a lot of good news to report. "We close the books faster, we don't have nearly as many earnings surprises, we're sitting on a quarter of a billion dollars in cash, our market cap has increased 70 to 80 percent, we've increased our dividend for the first time in 11 years, and we've started a stock buyback program," said Wolf.
But the 44-year-old Wolf was equally enthusiastic about a certain nonfinancial measure. Last fall, he surveyed 40 executives and managers from all corners of the corporation, and what he discovered was rather simple: They like us, they really like us. The survey showed that others appreciated the changes Wolf had instituted in his three years at the company, and recognized the key role finance needed to play if the company was to remain successful. "Our vision of becoming really equal, solid business partners was feeling pretty good," says Wolf.
That wasn't always the case. Historically, finance was a bit player at the Golden, Colorado, brewer (1997 sales: $2.1 billion). No one seemed to mind when Coors was on a Rocky Mountain high, roaring out of obscurity in the 1970s and '80s to become the number three brand in the beer market. The emphasis was on engineering and technology-- adding capacity.
That attitude finally began to catch up with Coors. By the early 1990s, the company faced increasing pressure to keep pace with larger rivals Anheuser-Busch Cos. and Miller Brewing Co., in an industry growing at less than 1 percent annually. As a smaller player, Coors struggled to be consistently profitable in light of its higher cost infrastructure (its marketing costs, for example, are double per barrel what its largest competitor's costs are) and dramatically lower margins.
But perhaps the most troubling financial indicator was what many saw as the frivolous use of capital. "[Capital expenditures were] high, and there was no evidence that they were getting returns on that heavy amount of spending," recalls Jay Nelson, an analyst at Brown Brothers Harriman & Co. "I always felt a lot of it was gold-plating."
"The process used to be that engineering led on capital needs," says John Schallenkamp, a 26-year Coors veteran who currently serves as vice president of engineering and technical services. "The finance people participated in discussions, but having them take an active role was not part of the culture here."
SOFT-DRINK TALENT
Enter Tim Wolf. Starting in 1980, Wolf had spent the better part of a decade in the finance organization at PepsiCo, where he was a key player on the team that drove the rapid expansion of the Taco Bell fast-food franchise. His next stops were The Walt Disney Co., where he was the finance point man on the 1992 launch of EuroDisney SCA, and Hyatt Hotels Corp.
In February 1995, Wolf was hired as Coors's CFO by president Leo Kiely, a Pepsi veteran who was assembling a new senior management team. Shortly after Wolf joined the company, Coors reported a first-quarter loss of 2 cents per share, thanks largely to earnings surprises that reflected the absence of a reliable planning and forecasting process. Even more disconcerting to Wolf, however, were the company's poor return on invested capital (about 4 percent) and its negative cash flow.
"In a slow-growth industry, using more cash than you create leaves the business exposed, threatens your ability to be investment grade, and threatens your credibility in the market," he explains. "And it's especially dangerous in a slow-growth industry where you're number three, where your break-even is very high, and where you have two tough, well-funded competitors."
Coors simply needed greater discipline in planning, capital use, and managing for cash flow. But Wolf realized that mixing financial controls in Coors's cultural brew could easily backfire. "The notion of discipline in the Coors culture had the tone of second-guessing, critical, judgmental, constraining," he explains. "I wanted the tone to be consistency, reliability, accountability."
BEER SEMINARS
In his first year, Wolf spent a considerable amount of time teaching. He and a colleague, Darwin Niekerk, developed a three-day seminar called BEER (Business Executives Economic Retreat), and they schooled the top 200 executives at Coors. The course work covered basic financial concepts, drove home the importance of conserving cash and achieving higher capital returns, and presented case studies on how other companies competed as number three in their market. "People deep down knew that we needed to do things differently," says Schallenkamp, "but that education reinforced the need to change."
Wolf also started a planning department within finance, and gave the top finance person in each of Coors's six business units dual accountability, reporting to the vice president of planning and the unit's general manager. The goal was to promote the notion that finance could be more of a business partner and help the organization make better decisions.
At the same time, Wolf put in place more-restrictive capital-spending guidelines and a business-case development process that was far more rigorous than anyone at Coors was used to. "To my mind, what we put in place was basic, just plain vanilla compared to other well-run, world-class companies," says Wolf. "But in the context of many of our operations people, it was a big change."
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