PMCC Interactive

Tag: Financial Leadership

  • Balancing Value Creation and Cost-Cutting: A Strategic Imperative for Today’s C-Suite

    Or, don’t just lunge at cost cutting- adopt approach that helps to focus on value creation and cost alignment

    In the current business climate, the challenges are twofold: sustaining profitability and maintain the capacity for value creation. There’s a heightened focus on cost-cutting as the immediate remedy for financial ailments. However, knee-jerk reactions can be detrimental in the long term. This post aims to shed light on the equilibrium between cost management and value creation that C-suite executives must strive for, especially in middle-market companies with revenues between $50 million and $5 billion.

    The Temptation to Just Cut Costs

    We are in a phase of the business cycle where cost-cutting seems to be the elixir to all problems. The media spotlight on downsizing and operational cutbacks can tempt leaders to make hurried decisions, focusing merely on reducing expenses. This approach may show quick wins, but the medium and long-term implications often offset these immediate benefits.

    Lessons from the Past

    The history of Leveraged Buy-Outs (LBOs) in the mid-1980s offers valuable insights. The dominating narrative was to “cut costs,” and it seemed like the logical step to generate sufficient cash flow to service debt. However, many businesses realized that this approach was not sustainable ad many cost cutting only exercises diminished the ability to quickly pivot as competitive positions changed  and the goal was not just to survive, but be prepared for value creating exits that rewarded owners and investors for the risk they undertook.  As it turns out, the goal is common, but indeed the approach does depend on your starting point, and capacity and capability to undergo change.

    Assess, Plan, and Act

    Before embarking on a cost-cutting mission, it is crucial to take a step back and assess the situation you are encountering- “why you are here” the competitive environment and ultimately what you are trying to achieve.  Here are some thoughts that might help sharpen your team’s thinking about the challenge and the opportunity.

    1. Alignment with Core Strategy: Make sure that changes you make and the resulting  cost-structure, supports achievement of your value creation goals, as well as your short term actions necessary to “weather the storm”. 
    2. Future-Readiness: Cost-cutting should not come at the expense of innovation and future growth that is in line with your goals and mid and long term value creation.  At the same time, this concept should not paralyze the efforts to get ahead of the real challenges you face.
    3. Employee Morale: Dramatic cutbacks can have a cascading effect on employee morale and productivity, affecting your most critical resource.  And at the same time, our experience is that many employees question what took leadership so long to come to grips with these critical matters.

    Balancing the Scale: Value Creation and Cost Cutting

    To achieve sustainable growth, businesses need to find a harmonious balance between cutting costs and adding value:

    • Invest in Talent: Reducing headcount may bring immediate cost savings, but investing in the right talent will yield productivity and cost gains along-with mid and long term value creation.
    • Technology as an Enabler: Instead of slashing technology budgets, consider how automation and digital transformation can lead to both cost reduction and value addition.  Also consider how technology can be used to both improve outcomes and help key employees do their jobs better and feel like they really contribute to the success of the business.
    • Customer-Centric Approach: Instead of compromising on customer service, explore ways to enrich customer experience. This is a powerful energy source for these efforts and the business
    • Data-Driven Decision Making: Utilize data analytics to identify inefficient processes and operational bottlenecks. This approach enables informed decisions, rather than across-the-board cuts.

    Conclusion

    Cost-cutting is not inherently detrimental; it becomes so when it overshadows the more vital goal of creating value. As a C-suite executive, your role isn’t just to survive the downturn but to position your company for future opportunities. By maintaining a balanced approach between cost management and value creation, you are laying the groundwork for sustainable growth and long-term success.

    For a deeper discussion and more targeted strategies on balancing these aspects, just click here

    https://pmccinteractive.com/wp-content/uploads/2023/09/20230918-value-creation.pdf

    Or reach out directly: pjm@pmccventures.com or  calendly.com/pmccventures-pjm-4

  • The conversation about the role of the CFO- and where she adds the most value continues- but the bottom line is that Finance counts!

    Thirty some years ago, we began research on the role of the CFO and the impact of financial leadership on the performance of the enterprise.  After interviewing and reviewing more than 50 organizations and engaging thousands of CFO/Financial leaders in workshops around the world, we found that there were several determinants of success.

    Moreover, we found great frustration on the part of CFO’s wanting a seat at the “business management/Strategy table” and the rest of leadership questioning why they needed/should have that seat.  While that conversation continues, the accompanying link to the Visual Capitalist shows that significant progress has been made and that the conversation continues and that is a good thing.

    Enjoy the link:  https://www.visualcapitalist.com/future-of-the-cfo/

    Meanwhile, each day, we continue to prompt the conversation and help Clients create value by  improving the business of their business

  • Best wishes for a prosperous, healthy, happy and meaningful 2017

     

    As we move on to a new year, I wanted to take a time out to thank all of you that have supported PMCC Ventures in 2016.  I appreciate it.  We had an interesting year, and I hope we continued to serve our clients in the exact way they needed support- and to help them create value.

    As we committed at the beginning- now 10 years ago, we are once again sharing our reflections on our key learnings from the past year.  We share them in hopes that you find them interesting, but more importantly helpful in some situation you are yet to encounter.

    Most all of our assignments this past year, revolved around private equity, structured finance or dealing with some sort of performance gap.  It felt good to get back to our roots, as we really enjoy working in this space.  Not sure if it is our familiarity or the dynamics or both…  Each situation was different- and at the same time, they were the same.

    In the world that we work in, it is an oft repeated phrase: “But you don’t understand: We are different”.  So over the past year or so, we concentrated on understanding differences, but of course to do that effectively, we had to also focus on similarities.  We found that there are of course differences—but they are generally rooted in the management team and the backgrounds they brought to the current situation.  In the world of underachieving organizations, there are a lot of similarities- about what the company is experiencing- and how they got into the situations they are encountering.  Our reflections below will share some of those insights.

    We are going to place a lot of focus and intention on underperforming and underachieving organizations in 2017.  We know that there is a lot of opportunity created by organizations as they “bounce off the bottom”.  We want to work with them, to minimize the disruption and maximize the height of the bounce.

     

    Reflections on 2016

    Underperforming and underachieving organizations—similarities and differences-

    Conditions that seem to be common:

    • Markets in flux… Difficult to grasp meaningful movement and change in direction… differing pace and intensity of changes experienced serve to further disorient and generated confidence in a direction to follow
    • Leapfrogging technologies… Shortening product life cycles… Difficulty keeping up with emerging opportunities and disappointments of disappearing opportunities… Uncertainty about where to place bets… Difficult to recover development costs… Staffing and knowledge base challenges…
    • Shifting customer needs, performance and loyalties… Customers face similar challenges… The importance of the relationship to weather these challenges is significant… keeping up with the various stages of relationships and lifecycle events was costly and required a lot of attention and time…Not getting it “right” was a death knell…
    • Critical resources: time, talent, capital and information are in short supply and not optimally applied… The longer the challenge, the more resources evaporated or became stretched… Market and technology changes make it tough to keep fresh and relevant talent available to pounce on opportunities… Capital or loan opportunities are already stretched, making new sources a real challenge to obtain and likely costly… The lack of relevant information- particularly about changing conditions was the most insipient and critically important… Resources frequently diverted to ministerial matters and strategies that were not promising….
    • Shifting contexts are confusing and make it difficult to plan and act- systemically and consistently… Difficulty keeping up with changing situations… Rest of organization characterizes management coping with this poorly, without fully understanding the volume of change, conflicting insights and information that management is juggling….
    • Time and focus shifts to dealing with ministerial duties and away from the things that help an organization create value… Increased time dealing with regulators, lenders, investors, lawyers etc.…. less time and energy available to focus on customers, markets and operations… can become a spiraling situation further driving organization from value added thinking and action
    • Responses become operational… and less strategic…and less cognizant of the system…. less value placed on thinking and more on motion than forward action… concepts of motion and action became confused… More inwardly focused…. People satisfice and focus on surviving and not thriving

    Underperforming and underachieving organizations—Conditions that are different

    • Type of presenting issue…Industry wide… or specific to the organization… influences the dimensions and probability of positive outcomes
    • Management team Experiences… many teams’ experiences and persona are growth oriented… many individuals and rarely teams have the experiences to manage through the downside… Team members selected for deep functional excellence- when the premium capability… is cross-functional systemic thinking and action
    • The starting point… Objectively how deep is deep? … How much effort needs to be extended to get back to “even”
    • Recognition and resolution…How well does the team recognize the challenge at hand?… How prepared are they to come to grips with it… Denial,,, Anger… Acceptance… Resolution and Healing….
    • Time and what has transpired so far…Passage of time and prior decisions and actions can either negatively or positively influence the outcome and the [re] starting point for any transformation activity
    • Capacity and capability… Influence the effort, the timing and the intensity of the change effort that can be applied- and hence the duration of the transformation period
    • The ability to execute the steps needed to … gain control and stabilize- what has been done- what needs to be done… when should it happen… distinguish urgent and critical… What might foreclose opportunities to maneuver later….
    • Resources… Does the organization have the resources (time… capital… talent… information) or can they be secured or created] to accomplish the necessary changes…. If not, what is a practical level of desired achievement in the best possible timeframe…

    Be diligent with diligence

    • Set a plan… Execute the plan…completely…. particularly in new or challenged situations… make sure that the basics of the deal are covered….  Risks are articulated and strategies in place to manage them… Know the structure that the new entities need to work within… head that direction… make sure that the inventory of service level and retention agreements are adequate and that they are favorable to provide the time and focus to accomplish “newco” requirements…Don’t assume… focus on key risks… identify transitional resources… remember, you don’t always get what you thought you would buy

    Strategy is not just adding and doing new things

    • Strategy is about placing resources and bets to win… it is not about adding efforts and requirements without ensuring that key resources are available…. .it is about making choices… overloading (or under-resourcing) an organization is a sure fire way to help a strategy fail…be thoughtful, realistic and practical about what it will take so succeed

    Strategic, financial and operational information is not like wine or cheese… the situation doesn’t get better with age when you don’t have them readily available

    • Integrated and systemic information is key to success… What insights do you need to run the business…is it readily available… against a context or model that makes sense for the business…Do the timeframes represented make sense…. Is it published in times and ways that can help make a difference… are all of the answers to the repeated or likely questions presented… Can you say immediately….” Now I understand” … Or do you have to do some of your own digging or calculations… Late or incomplete information are bad within themselves, but more importantly point to the existence of other organizational challenges…the organization that invests the effort to do this right will improve performance because of better insights…. And will improve processes and data models that will increase quality of controls… administrative effectiveness… efficiency….

    Marketing is a key turnaround tool and weapon

    • Getting the basics of marketing straight has never been more important…If you don’t understand your markets, your customers, their needs and wants- cold… be assured that someone else is trying to figure it out…and might beat you to the punch… Whether you deploy it physically, digitally or better- both… the basics are key…. No one has the time or the luxury of getting it wrong with customers today… few have extra resources to deploy in a wasteful way… though this waste is rarely evident- it represents a lot of cash and a lot of unmet opportunity…There is someone out there right now trying to know and attract your markets and customers… they just hired “that person” who knows x, y, or z technique cold—and they are deploying it for your customers…now

     

  • To be more effective, Financial Management has to become more offensive

    Despite being decades old, the debate about the role capability and performance of financial management  continues whenever financial leaders gather.  Our view is that no matter the side of the debate you take, your impressions of the barriers to effectiveness or your perception about your organization’s capabilities, most every organization needs more effective financial management capabilities to successfully compete in this hyper-competitive business and economic climate.

    Financial leaders need to set the tone and engage in the dialog that will produce positive and generative results for their business.

    Read more….20110425 EFM Offensive Financial Management

  • Further Thoughts on Effective Financial Management

    The topic and concern for enhancing the effectiveness of financial management has been around for decades.  Despite the length of time this matter has been on the stage, many leaders still are concerned and frustrated with assessing and enhancing their organization’s Financial Management Effectiveness.  PMCC Ventures has been dealing with this issue for 30+ years and offers some insights on why the issue is still front and center- and what practical things a business can do to enhance its financial management capabilities.

    To us, the fact that the issue is still front and center is a good thing.  We believe that the role of finance and hence its actual effectiveness will always be in a state of change.  The challenge for many companies is that in this constant state of flux and change- they are seeking insights for solutions in many of the wrong places.  Insights for meaningful change don’t likely exist within the organization- they are sourced by changes the business undertakes, changes in competitive situations, government or regulatory changes and the economic climate and its impacts.

    In many companies, the finance organization is buffered from dealing with shifts in strategy, changes in market conditions, and emerging issues.  This is particularly true where the traditional role of finance has primarily been to efficiently process transactions and accurately prepare compliant financial reports.  Plenty of new survey material suggests that the role of finance is changing and expanding, and the most recent economic situation has caused the overall organization to be more dependent on the effectiveness of finance- throughout the company- not just in the “finance department”.

    In today’s environment the source of enhanced effectiveness will likely be developing new capabilities- or dramatically enhancing existing capabilities- not just doing the same things incrementally better.

    To gain more insight on the subject, review PMMC Ventures’ brief presentation on Enhancing Financial Management Effectiveness- Seeing what is missing.

     

  • Effective Financial Management

    The subject of Effective Financial Management (EFM) seems to be a perennial favorite.  Welcome to our inaugural blog on the subject.

    EFM has been a favored research topic for educators and consultants alike.  The subject while likely around since shortly after the creation of double entry bookkeeping which seems to be around 1211 in Florence Italy, really came into focus in the mid 1980’s as companies were stretching their resources (and those of many of the manager-owners) to accomplish leveraged buy-out transactions.  Up until then, keeping score was the role of a few people in the organization whose offices did not have great views.  However, once people started putting their own money into the game, the desire to know where you stand began to build.  Further, the basic need for “safety” helped to move the concept of internal control out of the “nuisance column” and into the – “this is a good idea- even if it creates a bit more work column”…. ERP advances and the desire to cut cost lead to EFM’s focus initially being placed on transactional efficiency.  Shared services, and outsourcing created the opportunity to create both economy of scale- and economy of intellect (just how lucky were you to have the best accounts payable supervisor in each of your 29 locations that paid bills….?) by co-locating people doing the same tasks.

    The ENRON era related failures created additional control requirements mostly on the reporting side of the business with the apparent goal of creating an environment that financial leaders would be much better prepared to describe exactly how the horse left the barn when it was decided to keep the barn doors open to avoid the costs of running the fans….

    Yet these might not have been all that potent since we are still at a loss in coming to grips with just exactly happened on Wall Street in our latest series of financial challenges- and why “whatever it was” wasn’t reported sooner and more clearly.  Most of us are waiting with baited breath to understand the full scope of new government regulation that will help with these challenges in the future.

    And the debate rages, blame is laid and elixirs abound.  Yet, there are still many different definitions- and degrees of rigor applied to the answer of the question of: ”just what is Effective Financial Management”.  The debate is still a bit uncomfortable because some of the outcomes might not be “doable” for many organizations because many are still debating just “what is the role of finance” and if you can’t get your status in the organization settled- it might be tough to acquire or develop the resources to create EFM.

    Having been on the EFM quest for 30+ years, we know there are a lot of good people with good ideas- some basic- and others game changing about how to create a business environment that enables more Effective Financial Management.  With that as background, we launch this Effective Financial Management Discussion Forum.

    We want to run this as a true discussion forum with rich and thought provoking conversation emerging.  Since we are all at the same time, operators and investors, it is in our best interest for companies to improve the effectiveness of their financial management.

    To put the ball in play- we ask a few simple questions: To create a more Effective Financial Management environment or capability for your organization what would you have to:

    • Start doing
    • Stop doing
    • Continue doing with more intensity?

    What has been in your way of accomplishing this?