Managements have been obsessed with growth for a long time. But the fitful economic recovery from the pandemic and the unfamiliar pressures of inflation call for a shift in gears.
What’s clear — from earnings calls and stock market reactions to poor performance — is the pursuit of growth "at any cost" is gone for most businesses. That was one of the key points from a panel on growth and efficiency Thursday at the CFO Leadership Conference in Boston.
The question now is, “growth at what margin?” said Ranga Bodla, the panel’s moderator and a vice president of field engagement and marketing at Oracle NetSuite.
'Efficient,' not 'blind' growth
Projects, for example, need to be looked at through a new lens. Some that made sense during the pandemic don't make sense in a period of escalating input, transportation, and labor costs.
Premier Claims, a property insurance adjuster, has grown 20 times in the last four years, said panelist Melissa Hurrington, the company’s CFO and vice president of operations. “I call it ‘all gas and no brakes,’” she said.
But the company has not been pursuing “blind growth” — it has been cognizant of relying too much on one customer or selling into only one market segment, she said. And it has trained one eye on efficiency — keeping operating costs in line, growing headcount slower than revenue, and trying to stay “scrappy like a startup,” Hurrington said.
Inflation and the tight jobs market now make efficient growth necessary, said Hurrington.
The higher cost for personnel is one reason. Job candidates are asking for very large, sometimes “ridiculous” salaries, she said. “We have to figure out how to do more with less,” Hurrington said. “I need to train the staff, keep them happy, and [motivate them] to identify efficiencies.”
Rushed growth carries a cost
During the COVID-19 pandemic, litigation and discovery data firm Sandline Global took any job to bring revenue through the door, said panelist Glenn Hopper, Sandline’s CFO. However, that rushed growth came at a cost — heavy discounting and longer payment terms eroded the company’s margins.
Now, Sandline has to be smarter about how it expands its topline, said Hopper. The company has turned its attention to cash — specifically, the cash conversion cycle. Shortening the sales process and sending out invoices quicker, for example, are key goals.
Mindsets are also changing about choosing projects and investments. As the pressure on labor markets continues, inflation lasts, and capital gets tighter, the criteria for approving projects — even those that contribute to growth — will change.
Sandline Global is still looking for “quick hit” projects that will deliver results, Hopper said, such as adopting an automated expense management system. During the pandemic, pursuing such projects was reactionary, akin to playing “whack a mole,” he said. Now, though, Sandline is more disciplined: it prioritizes projects based on whether they meet measurable objectives.
For some CFOs, the pandemic and its aftermath taught them how quickly business can change. What was a priority for CFOs 26 months ago is much different than what is called for today. “An 18- to 24-month [project] implementation is too long now,” said Hurrington. “The whole game can change.”
Cash is (still) king
CFOs, always focused on containing costs, are also starting to look at whether projects make sense on a cash basis, said global business adviser Ram Charan in his keynote address at the CFO Leadership Council event.
Once again, “cash is king,” Charan said. “Some of your products are no longer profitable on a cash basis." It’s time to "take the cash-absorbing products and services out.”