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One consultant shares tips for CFOs in today’s economic environment.
Kate O'Sullivan, CFO.com | US
July 2, 2008
Jason Balogh is a principal in the CFO advisory practice of Archstone Consulting in Chicago. He focuses on issues of concern to finance chiefs, from structuring the finance department to establishing an offshore presence to Sarbanes-Oxley compliance. He spoke with CFO.com recently about how his clients are reacting to today’s challenging market conditions.
The U.S. economy is struggling right now. How are CFOs responding?
We’re clearly seeing belt-tightening across a variety of industries. Most companies are not in a complete lockdown because of the economy, but they are taking steps to examine their cost structure, manage the commodity increases as best they can, and focus on maintaining their positions with their key customers.
Are finance executives focusing on different things than they were a year ago?
Finance executives are being called on to focus on a few areas. They are weighing in more on the financial impact of operational improvement programs. They are taking a leadership position in working with HR, IT, and procurement to really examine back-office costs and to consider other models such as outsourcing or shared services. And they are getting heavily involved in more strategic decisions that their companies are considering due to the economic climate, including mergers, acquisitions, geographic expansions and contractions, and brand or business divestitures.
Does all of this activity place more stress on the finance function?
Finance is largely up to the task, but two main things are important in helping them play these roles. First, finance needs to be able to quickly analyze data to support the business in modeling the impact of potential decisions, and, secondly, finance needs to have the skills to be able to innovate and partner with the operations side of the business to do more advanced analysis. Those organizations that have been thoughtful about placing and training their finance staffs are better positioned to respond to these stresses.
What would you recommend to a CFO whose organization is struggling in the current economy?
The answer might well be different for a given organizational situation, but we often recommend to our clients that they get a solid grasp of their back-office cost structure, quantitatively and qualitatively. How well do they compare to companies with top-notch finance functions? We also suggest that clients take a rapid inventory of their resources and validate their organizational structure. Is their current alignment best suited to support the business? And we encourage clients to really examine enterprise-wide spend – both current and forecasted—to help identify new ways to manage the cost structure.
What else can CFOs do to help their companies manage the downturn?
CFOs can take a more structured and aggressive role in re-visiting financial plans and forecasts—re-examining capital plans and capital commitments to see if investments are truly required or potentially may be delayed. Finance execs need to really push on the business to gauge the quality of predicted results – will units really be able to “make things up in the fourth quarter?” Also, they need to really make sure that there is little cushion in the various plans that business units submit.
Finance chiefs can also take a leadership role in working with operations on realistic target-setting and ongoing realization of cost-reduction programs. We find many companies launch these programs but have difficulty tracking the benefits. What are the projected financial implications of operational changes like SKU reduction, facility rationalization, etc.?
Another thing CFOs can do is partner with their sales and marketing organizations to really focus on maximizing profit margins through pricing. They need to gain visibility into true product and customer profitability levels. They should be asking, “Where are we really making (or losing) money?”