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Finance executives rising from the downturn's ashes have changed companies' culture, business models, and their own expectations.
Sarah Johnson, CFO.com | US
November 25, 2009
Notorious for not wanting to hog the spotlight — and sometimes not even wanting to stand near it — CFOs who have been sitting under the glare of the lights for more than a year aren't budging. That's because, with the newfound, perhaps unwanted attention, CFOs have realized that, finally, their voices are being heard on ideas beyond compliance and controls matters. They have earned a solid seat at the strategy table as CEOs and investors have demanded they find ways to make significant cost cuts, spur efficiencies, and reexamine existing business models.
Now that they're used to the attention, finance executives are unwilling to let it go.
"Once it's there, it's not easy to take away," said Gunther Niedernhuber, CFO of BMW Group's German market during the MIT Sloan CFO Summit last week. Moreover, he added, "shock…will remain in the consciousness of companies." In other words, no one will easily forget the bad days of the credit crisis — when companies suffered through liquidity fears, cash concerns, and widespread uncertainty about the future — or the executives who had the answers to get their businesses out of it.
Sponsored by the MIT Sloan Alumni Club of Boston, a panel of finance executives who believe the crisis is largely behind them explained how they dug out of the downturn and managed to help change their companies' cultures and setups. "The theme [of the past year] was, don't let a good crisis go to waste," said Kurt Kuehn, CFO of UPS.
Rather than get stuck in a complacent state, Kuehn said, the downturn became an opportunity for CFOs to get moving on pet projects they previously couldn't get started. Now people are listening to the executives' ideas on how their companies can become more nimble, operate under wider profit margins, and slash traditional fixed costs. "It was a great year to be a CFO, except for the few days of worrying about liquidity," quipped Kuehn.
Further, finance executives whose companies have done relatively well have had to change their own expectations for near-term results and are trying to encourage those who depend on them to do the same.
"Flat is the new growth in the fourth quarter," said David Goulden, CFO of storage giant EMC. Using a catchphrase that began to take off last year, Goulden's remark elicited guffaws from the conference attendees, many of whom are finance executives. Likewise, Roger Millay, CFO of consultancy Watson Wyatt, said he's expecting modest growth for this quarter after seeing "basically flat" results during the most recent earnings period.
Still, Goulden predicts a slow recovery, even though he doesn't "see any big loosening of purse strings." The CFO has predicted that EMC will report about $4 billion in revenue for Q4, or 30 cents per share. For the same period last year, EMC recorded $4.02 billion in revenue, which at the time was a 5% increase over Q4 2007.
To compensate for the decline in business spending on the part of its customers, EMC has made cuts during the past year, including a 5% reduction in its payroll through salary cuts and layoffs. But it's continuing to make investments through acquisitions, forming business partnerships, and R&D spending so it doesn't fall behind on emerging technologies. "If we don't keep our tech engine moving forward, we would face a difficult future," said Goulden.
With an eye toward future investments, though, CFOs have also had to make some tough decisions. In addition to "the agonizing process," in the words of Kuehn, of figuring how to make a dent in their highest costs — employees' salaries and benefits — finance executives have had to prepare their companies to let go of business units that are hurting financially. CFOs should ask, "In five years, will this [business] be a part of the company?" he advised.
Finance executives have also found themselves interacting more often with sales and marketing. Companies such as UPS and EMC have changed their proposition to business customers, now claiming they can help them cut costs. And finance executives have had to push back on their sales teams' requests for more wiggle room to get deals done. At EMC, that has involved not taking on vendor financing. "Our sales force [was] beating on us to be creative but we held the line," said Goulden.
To be sure, CFOs have crossed a figurative line in terms of advancing their positions in their companies. "Finance guys are the ones who are [considered] no fun," said Niedernhuber. "Others get to have the opportunity to use crystal balls and share their visions and dreams…. Now the situation has changed. And it's not about dreams anymore — it's about solid business cases and business models that are sustainable even if the [recession] situation persists."