Year of the CFO - Pennell Group Commentary

2009 is shaping up to be one of the most challenging years for businesses in modern history, and 2008 was not that great either.  Any assumptions that the worst is behind us have yet to be validated and the forecasts are now projecting low to no growth until Q4 2009 or 2010.  Government bailouts continue apace and nearly a trillion dollars of economic stimulus are planned for the US alone in early 2009.

For IT organizations the challenges have never been greater (and this time it’s true), we expect that there will be little or no funding for discretionary spending and investment and that the focus will only on the ‘Keep The Doors Open’ operational tasks and support projects.  Any discretionary projects that do get approved will either be driven by regulatory compliance or will show a positive ROI that impacts cash flow in a very short period of time.

Cash is King in 2009.

For companies with strong balance sheets, there will be amazing opportunities to acquire debt-ridden competitors or take significant market share by capitalizing on their financial weakness.  In the years to come, these strategic moves will pay off significantly.

In 2009, the Pennell Group recommends that CIO/CTOs take time to get to know the CFOs better.  The CFO demands are going to be stringent and a hard-nosed focus on business fundamentals will be paramount to making it through this year successfully.  Can you account for and explain all your cost structures and how they support the business, which could be eliminated or reduced?  Don’t wait to be asked.  You need to be prepared, and posses a solid plan.  

If you are proposing any new investment, come prepared with a clear to understand business case and supporting financial data that shows the total investment, total return over time, time to reach ROI, Net Present Value (NPV) and Internal Rate of Return (IRR).  This year, it will be especially important to consider the cash-flow consequences of the project. What specific cash outlays will be required and when, and when are the benefits going to appear.  

Often project capitalization (CAPEX spending) can give the appearance of spreading the cost of a number of years even though the cash outlay happens as the project progresses (FASB-10).  Understanding these factors will help you become a partner in the business and increase the likelihood that your project will be approved.

When renewing maintenance agreements and acquiring new products and services, you should be looking to negotiate hard for a great deal.  Don’t just accept the rack rate contract renewal, or rack rate pricing, you need to be looking for a discount and potentially a large one.   You may want to engage a specialized consulting company to negotiate on your behalf.

Lastly, this is not going to be the year of the SOA, Enterprise Architecture, New Product Development, R&D breakthrough, big bonus for most companies.  It’s disappointing, but that’s not where we are this year.  This is the year to focus on financial fundamentals and detail oriented execution.

As always, The Pennell Group is here to help.

Stay warm (-22f in Minnesota today!)

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This article is taken from The Economist - World in 2009 - Print Edition - Pennell Group Commentary on the IT Perspective follows.

The year of the CFO

Nov 19th 2008

From The World in 2009 print edition

By Lucy Kellaway

Prepare for the year of the finance director. In 2009 the world will find out just how bad corporate balance sheets really are, and companies—most of which escaped the early effects of the credit crunch—will start to find it trickier to raise money. Add to that the upward push in costs and downward slide in demand, and the chief financial officer (CFO) will be called upon to shore up the P&L too.

The implications of his ascendancy will be felt far beyond the figures and will last much longer than it takes to make them look healthy again. There will be a shift in the balance of power in the boardroom, which will affect how companies are managed, what it feels like to work in them, the culture of business and even its language.

For the past decade the prevailing wind in boardrooms has been gentle. Emotional intelligence and innovation have been what counted, and what leaders professed to value. But those ideas are all but finished. No one will talk of EQ (“emotional intelligence quotient”) any more. It will be EVA (“economic value added”) instead. Thinking outside the box (an over-rated activity at the best of times) will not be celebrated. Ticking boxes will be.

As financial skills are valued more highly, CFOs will make it to the corner office in greater numbers than before. Recession, credit crunch and the increasingly complex nature of global companies will all play directly into the bean counter’s hands. Nominations committees will throw their trust behind the guy who has protected the creditworthiness of a company in hard times and won the trust of the market; they will pick him for the top slot rather than poaching an expensive star CEO from outside. This will be bad news for headhunters (who will vainly try to make good the shortfall by meddling in internal succession instead), but also bad news for CEOs’ bank balances as top salaries will halt their ever-upward march.

Leadership style at the top will change. Big personalities have been out of fashion at the top for some years; in 2009 they will be more out than ever. However, egalitarianism and empowerment will also be on the way out; management by fiat is going to make a stealthy return.

In the boardrooms, the firm slap of leadership will be felt. “Execution” will no longer be a management fad, it will be a part of daily life. We will hear less of “vision” and much more of “value”.

Goodbye “talent”, hello “staff”

The biggest loser in the struggle for power will be the human resources director. In the past five years HR has been enjoying the greatest power it has ever had. The “war for talent”, which companies have fought tooth and nail, will be over in 2008, neither lost nor won: there will be a ceasefire brought on by lack of funds and exhaustion of the troops. An old truth will be whispered by the brave: most workers are not terribly talented and most of them don’t need to be, as most jobs don’t require it. In 2009 a more elitist shift will occur: companies will worry about the performance of those at the top of the pyramid, while everyone else will be managed like a commodity. “Talent” will be a word we wave goodbye to. In 2009 the word “staff” will make a comeback, as will “headcount”.

In this new world the HR director might just cling on to his title, but his job will be downgraded to personnel and in particular to payroll.

The marketing director will also lose out. He has already been kicked once by the decline of advertising and kicked again as the power of the internet has made his traditional tools useless. In 2009 his budgets will fall further, as will his status. As for the corporate-social-responsibility supremo, he will be told to take a gap year indefinitely.

Thinking outside the box (an over-rated activity at the best of times) will not be celebrated. Ticking boxes will be

The firm financial leadership will be welcome in that it will help companies survive, yet being a corporate foot-soldier in 2009 is not going to be enjoyable. Moaning will be on the rise as inexorably as expenses will be on the decline.

There will be less foreign travel, which will make work more efficient but duller. And there will be no more free champagne in first class—it will be steerage only. Expense-account lunches and subsidised health clubs will be slashed, and stationery cupboards will be thinly stocked.

One blessed thing will be cut: weekend offsite meetings in luxury hotels. Instead, if managers feel the need to bond at all it will be done more quickly over a cup of tea from the vending machine. There will be no more laughter workshops led by an outsourced facilitator—but then in the new world of 2009 there is not going to be a lot to laugh about.

Lucy Kellaway: columnist at the Financial Times and author of “The Answers: All the Office Questions You Never Dared to Ask” (Profile)

http://www.economist.com/theworldin/displaystory.cfm?story_id=12494665