Strategy

Are you too small for a CFO?

jene

The title of this post is “Are you too small for a Chief Financial Officer (CFO)”. Maybe another way to look at the question is “Will you get much bigger without one ?” A large number of small to medium sized businesses (+- R40m to R200m turnover) that I have advised over the past few years have struggled with this question, with some employing a bookkeeper or appointing an external accounting firm in order to reduce costs and give them a sense of comfort that the CFO role is being addressed.

This model works quite well while the business is performing adequately, but will this model contribute to growth, improved cash flow or identify red flags which may impact on future sustainability?

Different views of the CFO role

What is your view of the CFO

The bookkeeping function is important to ensure that your financial transactions are accurately recorded and reconciled.  The external accounting firm also plays a critical oversight role and in some cases can prepare standard management accounts for the business.  However, in a fast changing world with increasing economic uncertainty, it is definitely becoming more risky to make executive decisions without involving your finance officers.

The historical role of the CFO has been to concentrate on risk management, financial controls and processes.  Today this role is expanding to include that of strategy definition and performance management.  Whilst the technical aspects of financial reporting, risk management and compliance have not been diluted, the modern CFO also plays a greater role in commercial leadership and assists in day-to-day management responsibilities.  The board and other stakeholders are also increasingly expecting the CFO to work in partnership with the CEO to drive stakeholder values and provide feedback on financial as well as non-financial matters.

The strategic CFO needs to be able to look forward and should be actively involved in identifying future investments such as acquisitions, or new growth markets and products.  A strategic CFO focusses on gaining a thorough understanding of the company and the environment in which it operates.  This means understanding the target market, competitors and suppliers as well as changing economic, political and technology trends in order to evaluate and present strategic alternatives.

Your CFO can be your partner!  Instead of costing you more money, the right CFO can help you to make more money!

Directors’ Silence

zen-moser

Board members’ actions or lack thereof, has been very topical lately.  I found that the attached article released by the CGF Research Institute underlines the importance of appropriate dissent in the boardroom.  It also emphasises the role a functional board plays in contributing to a successful and sustainable organisation.

Directors are required to act in the best interests of the organisation.  This requires a director to have the appropriate inter-personal skills and the requisite knowledge and understanding of his obligations and responsibilities towards the organisation.  In addition to being committed to performing his duties to the best of his abilities, a director must be prepared to question actions and decisions being taken by the board.  He must also ensure that his differing views are properly minuted.

Constructive debate and dissent in the boardroom should be encouraged to ensure that business risks and proposals are properly explored and discussed so that appropriate governance and strategic guidelines can be communicated to management and the rest of the organisation.

Failure to voice and record your dissent as a director, may result in loss or damage to the organisation.  This in turn could expose you to potential personal liability as your silence/inaction may have resulted in a breach of your fiduciary and statutory duties!

29 Sept’14_Director’s dissent_Where your undue silence will be used against you

Can Your Business Survive If Your Factory Burns Down?

zen-moser

The world as we know it has undergone a revolution! The introduction of the internet has forced us out of the Industrial Age and into the Networked Economy. We now have to deal with Facebook, Twitter, Emails, Skype etc. and the way in which these types of platforms and technologies have changed the way in which we do business.

In Seth Godin’s book “The Icarus Deception” he refers to the fact that the Industrial Age taught us that standardisation and mass production were the recipe to cost effectiveness and sustainability – and for a long time this was true! However, the new economy makes it possible for people to source bespoke solutions at a price which suits their pocket. The Networked Economy enables “endless choice and endless shelf space” – you can find anything or anyone you want anywhere in the world!

So how do you729-fire-420x0 differentiate yourself in a world where anything is possible? It is about building relationships that last! Consider the situation where your factory burns down. If over time you have built up a loyal customer base, your chances of recovering from this setback are good. However, if you lose your customers, having a factory is not going to make your business sustainable.

Think about the recent IT meltdowns at FNB and Standard Bank which resulted in errors in the processing of debit orders and temporarily inaccessible bank accounts. Despite a huge outcry from dissatisfied customers, particularly on social media, how many clients actually changed banks as a result of the problems that were experienced? I know that some would say that it is too difficult to try and change banks, but I would wager that the banks’ reactions to the problems as well as their ongoing customer engagement programs, made it easier for their clients to decide to keep their accounts with these banks.

In order to encourage someone to do business with you rather than with someone else, you need to get noticed and build a relationship of trust. You can no longer only supply the same standard products or provide the same standard service – you need to go above and beyond and your business strategy needs to take this into account! More and more the company’s value system is playing a role in differentiating it from its competitors. It is therefore important to define what the company stands for and how it does business. As we know, trust is earned and not given. As such, consistently excellent performance in all areas of the business becomes even more vital in building brand loyalty. A badly worded advertisement or the wrong delivery address could do irreparable harm to your reputation and your business if you have not built solid relationships with your customers.

In the new Networked Economy, you need to be able to “touch” customers in order to build brand loyalty. Your product/service, the way you make it, the way in which you advertise it, as well as the manner in which you deliver it needs to resonate with a potential customer in order to encourage him to make the decision to buy! Bear this in mind when designing your business strategy.

The Ultimate Human Race vs. Strategy Development

zen-moser

When doing a post-mortem of800px-Marahon_shoes my last Comrades marathon, I was once again reminded of how important strategy is to virtually every task one tackles!

You may be wondering how on earth I can draw parallels between business strategy and running the Comrades Marathon. For those of you who have run this race before, I am sure that my story will sound very familiar.

It starts off by declaring your vision: to run the Comrades Marathon. Bearing in mind that only a few thousand people in the world have completed this race, this is no ordinary goal. You have now set your vision and you tell all your friends and family of the challenge that lies ahead. This piles on the pressure – you just have to make it work!

Despite the fact that I had run this race before, my next reaction was to panic – I am unfit and I need to start training immediately! Luckily, common sense prevailed, and I realised that before I blindly hit the road and start running, I needed to work out a plan. This plan needed to take into account my existing fitness levels and how much time I had left to get fitter. I needed to find out what was new on the running front – what had changed as far as the qualifying races and times were concerned, were there new diets to be considered, did I need to change the shoes I was using? These were only a few of the questions which raced through my mind and needed to be considered. Thankfully, although competitive, the road running community is very supportive and many people are happy to share their advice and experience on training programs and eating plans. And let’s be honest, it is always reassuring to know that others are experiencing the same doubts and challenges that you are facing. However, it was also important to realise when expert advice was needed and to consult with the required professionals when necessary on things such as injuries and training programs – you need to be humble and admit there is always stuff you just don’t know, no matter how experienced you think you may be on the subject.

Setting interim milestones was an important way for me to gauge whether or not I was ready to tackle the race. I also needed to be flexible and adjust the training program when life interfered, and very importantly, I needed to make sure that I did not get sick or injured in the 6 weeks leading up to race day. I wanted to make sure that I got a chance to run even if I had to compromise a bit on the training!

And just when I thought the planning, measuring and monitoring was behind me, I had to work out my plan to tackle Race Day! What pacing chart should I follow? What would I eat along the way? Where would I be meeting my support team? These were just some of the questions that I needed to plan for in order to ensure the best probability of success on race day. Many runners will know, that you don’t try anything new on race day – only tried and tested tactics are to be applied! At this late stage, I took personal advice from Lindsey Parry at the Comrades expo on how to pace myself throughout the race. (He and Brad Brown from Run Talk SA hosted a monthly Comrades webinar in the build up to Comrades which provided some very useful advice and tips for the race).

And so it was that with detailed planning, committed execution, great family support and a bit of luck, that I was able to complete my ninth Comrades Marathon in 10h45.

So at this stage you are probably asking: where are the parallels to business? Let me set it out in a manner which makes it more obvious:

  1. Establish a vision or future goal to be achieved.
  2. Assess the external environment in which you are operating and identify the important elements which could possibly impact on your business.
  3. Analyse the competitive landscape. Know who is doing what and how, and more importantly, who are the potential new entrants to the industry.
  4. Perform a comprehensive SWOT analysis with emphasis on identifying elements unique to your business.
  5. Confirm your approach to market and desirable timelines.
  6. Set milestones (targets or objectives) which can be used to benchmark your performance and confirm the progress being made. Work out the action plans needed to achieve these milestones.
  7. Identify positions (market share, skills, technology etc.) which need to be defended and outline your defensive actions in this regard.
  8. Identify the resources required to ensure successful implementation of the action plans.
  9. Extract and monitor the critical success factors which can jeopardise the entire strategic plan.
  10. Monitor progress and take corrective action timeously.

Strategy development is stressful and puts a lot of pressure on you, but it is very rewarding when you do achieve your goals. Success motivates you to go out and do more!

Is Your Business Ready To Scale Up?

zen-moser

Most entrepreneurs investing time and money into a business want to see it evolve from a small business to a large and successful concern! Unfortunately, this is not always the case. While many startups fail, others go on to achieve decent organic growth and a few like Amazon scale up significantly.

Investopedia describes a scalable company as “one that can maintain or improve its margins while sales volume increases” in other words, being able to channel more through the business without increasing costs. Others define a scalable business as one whose sustainability is not completely tied to ownership in that the business has managed to grow beyond the founder by focusing on something that is teachable to its employees, valuable to customers and repeatable in a way which generates a recurring stream of revenue. In my opinion, the most general definition is simply being able to grow your business to the next level.

Whatever your interpretation, at least 3 common themes are evident in ensuring that your business can grow:
1. Focusing on the future
Do you know what is happening in the market? Are you paying attention to new trends and new entrants? What is the competition doing? Can you leverage your strengths? Are their opportunities for acquisitions? These are all strategic questions which should be considered by management/owners who have their eye on growth.

2. Being in the right place
It is important to find and establish key relationships and networks that you can tap into in order to glean information on circumstances and opportunities which may impact on your business. To some, building relationships comes naturally, but others may require an actionable strategic plan to put these relationships in place.

3. Readiness to scale up
If the failure of a competitor suddenly provides you with an opportunity to grab additional market share, would you be able to seize the moment and deal with increased sales volumes? Alternatively, have you considered whether or not your products/services, people and systems are ready for growth into new regions or markets? Consideration will need to be given to amongst other things your organisational culture and the ability of your people to deliver increased volumes without compromising on service excellence. Do you know what products/services you will be able to sell into a competitor’s installed base or into a new region and what your approach to market will be? How will your supply chain be affected if you had to suddenly increase your order size or stock holding? Will your technical support, finance and administration systems be able to manage an increase in workload on a sustainable basis? Do you have access to capital to fund an increase in working capital or a possible investment in additional/new facilities? The answers to all these questions and more, need to be factored into your strategic plans.

Are you asking yourself some of these questions? Whatever your stage of readiness, it is important to think strategically and plan for success!

In a previous article I provide further insights into the strategic thinking process.

Strategic Thinking and Small Businesses

zen-moser

According to a study conducted by the Management Research Group, 97% of a group of 10,000 senior executives surveyed thought that strategic thinking was the most critical leadership skill for an organisation’s success. This is very interesting bearing in mind the limited amount of time organisations spend on strategic thinking.Good Point

What is strategic thinking? It is the process of generating ideas and possible solutions to current and future circumstances and challenges. It requires one to see the big picture, challenge the status quo, perform objective analysis and implement forward thinking and planning. This process is fundamental to an organisation’s sustainability. Far too often, current day-to-day operations and fire fighting take up all our management time and too little time is spent considering the future and the impact of changing circumstances on our businesses. We only realise this error in prioritisation once the walls start closing in and cash flows start suffering.

During the strategic thinking process, we ask questions such as “What might happen? When will this happen?”. We have to make strategic decisions around “What will we do?” and develop strategic plans incorporating “How will we do it? Who will do it and by when?”. We need to understand our connections and interdependencies with the external environment and how to align our internal capacities with the changing and dynamic external environment in which we operate in such a way that our business continues to flourish. As you have no doubt already deduced, this is not a once-off process, but rather something which needs to become ingrained into the organisation. In addition to holding dedicated strategy sessions, I have found that documenting your business plan and introducing budgeting and regular forecasting mechanisms can be useful tools to stimulate such strategic thinking.

Contrary to poplular belief, strategic thinking is not a process which falls solely within the domain of the CEO, but is rather the responsibility of every employee within the organisation. The power of harnessing your employees’ energy and drive in one cohesive direction can only lead to superior results! In my experience, it is therefore also important to create a corporate culture which encourages everyone in the organisation to think strategically. The strategic plan needs to be documented and communicated to everyone in the organisation so that all employees understand their role in achieving the organisation’s objectives. Consider rewarding your managers and staff for forward and proactive thinking and for generating longer term solutions. Encourage your staff to voice their different viewpoints and challenge the status quo in order to constantly improve efficiencies. Don’t be afraid to share information with your staff especially if it can help them achieve better, more sustainable results!