Leadership in Finance: Zebra Technologies’s Michael Smiley

The CFO of a bar-code printer company says it is investing for the long term and is well positioned for the current downturn.
Kate O'SullivanMay 1, 2009

As finance chiefs around the country slash everything from travel to payroll, many are weighing their ability to invest for future growth. Those whose companies are struggling for survival don’t have the luxury of thinking that far ahead, as evidenced by a recent McKinsey survey that found 40% of responding executives were actively looking for ways to reduce their research and development budget.

At Zebra Technologies, a maker of bar-code and RFID printers and other identification technologies, CFO Michael Smiley says part of his role is to help the company strike a balance between meeting short-term profitability goals and investing in innovation. The company finished last year with no debt and nearly $225 million in cash on its balance sheet, so Smiley says he and his team are looking for opportunities to invest through the downturn. They’ve also recently been buying back company stock, which they believe is undervalued. Smiley spoke with about how he tries to find the balance between short-term demands and long-term growth.

Tell me a little bit about the role you think CFOs play in innovation.

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As a CFO, and generally as a company, the objective is to create long-term value for customers and shareholders and provide an exciting opportunity for employees. You want to be part of a winning team. To be part of a winning team, you have to have something special about what you do to create that environment to be successful.

To be a good CFO, you have to have your hands on where you’re allocating resources, but you also have to make sure that those resources are being invested for long-term growth opportunities. At Zebra, we’ve been trying to focus not only on short-term profit obligations but also long-term objectives. That again comes down to making sure the CFO provides a balanced perspective for everyone. Investors don’t just want to hear about near-term profitability, they want to hear about long-term growth. My role is to make sure we have that balance.

Has that role changed recently?

Certainly when the economy is going swimmingly — and perhaps there are more funds than when the economy is not doing well — it may feel simpler. But I think this is a time when companies have the ability to sit down and evaluate where things are and if need be, to make changes. The difficult environment gives you the impetus to look at yourself and make sure you’re on the right path to that long-term value proposition.

At Zebra in 2000 and 2001, we had a period where the company made meaningful investments through that down cycle and benefited from it strongly when the economy recovered. Not that all companies take that same tack, but that’s an approach Zebra has had a reputation for in the past.

So you are taking the opportunity to hire people or acquire new technologies?

We will sometimes find people coming down the street [from other companies] who can really fit well in our organization, and we’ve taken advantage of that. As far as partnering, we’re looking for new ideas.

We have been focusing on making sure we use our capital to invest in the highest-value, risk-adjusted alternatives. Right now with equity valuations where they are, we are using a fair amount of our capital to buy back our own stock. We find the valuation of our company very attractive. At this point we are not so much focused on acquisitions, which I’ve heard people say lately is like trying to catch a falling knife. We’re evaluating alternatives and trying to understand the risks, but right now we’re focused on investing in the company.

How do you show people that you as the CFO are not just focused on cost control but also supportive of innovation?

Prior to coming to Zebra, I was the general manager of a telecom equipment company. We were successful in launching new products that were really critical to the viability of that enterprise. So I bring that perspective to my role as CFO. I understand that if your only focus is reducing costs, your company is not going to be viable. That’s where I think that balance between short-term and long-term goals is important.

Does the vetting process for new projects change in this kind of an economic environment? Are there new hurdle rates or scenarios you use?

We’re not really changing the process or the metrics, but we make sure that what we look at is consistent with the economy we’re in. Right now we’re in a very challenging economy, and what may have been assumed two years ago…perhaps we challenge some of our assumptions more thoroughly than we might have in the past.

Other variables might change a bit. What the competition is doing has changed; customer needs have changed. We have a product that’s used across many industries. There are shifts in industries with different geographies and customers. We need to understand that a manufacturer in North America and a manufacturer in Asia may be different.

Are you seeing competitors making changes in their approach to innovation?

We’re seeing competitors whose financial foundation is not as solid as ours, so they are being forced to try to survive, versus making decisions that will enable them to thrive. We’ve had the latitude to do those things that will drive more value for customers.

Because of our cash flow, and the fact that we have a lot of cash and no debt, we have flexibility that I would view as a competitive advantage relative to some others. We’re seeing competitors having to make hard choices in their business, and that’s creating opportunity for us.

As CFO, if I can provide the foundation to keep the company sound and be successful in this environment, that’s one of the things I can do to support innovation. Now is the time to take advantage of the things you’ve done in the past to lay that foundation. We’ve got an incredible foundation to build on, with very strong profitability and a very strong brand. We want to attack the market and build on that. Our goal is to be stronger coming out of the recession than we were going in.

As a leader in the company, how do you relay that sentiment — that sense that you are in a strong position relative to others — to your employees, who are reading bad news every day?

As a leadership team, we are trying to be a little more rigorous in our communications with employees. I want to make sure I get out in front of employees and make sure employees know what we’re doing, and I want to respond to questions. I don’t think we sit down and say the world is great, but we try to paint that picture of being successful going forward, because that’s what we need to keep people here excited.

Companies with a lack of access to capital have got to do drastic things to survive. But if you’ve addressed your business when times were good, in this environment you can make those long-term decisions that are good for customers, shareholders, and employees.

But if you’re in the RV industry, where sales are down 80%, you’ve got to do some pretty drastic things. Maybe you’re a company that’s been aggressive, taking on a lot of debt, and now you can’t meet your covenants, and you’ve got to do something pretty drastic. But if you have managed those things well, you can really take advantage now and be aggressive with investing in innovation and looking for opportunities to grow your business.