|Five ways the CFO can contribute to the top line
How one organization examined its business model and created a new company.
May 9, 2013
For the past five years, numerous companies have been cutting product and service lines, reducing budgets, and watching governments fail at preparing budgets—all contributing factors to uncertainty and slower growth. Consequently, some companies have not generated returns to exceed their cost of capital and have been returning cash to their shareholders. But isn’t it time to revisit your plan, revitalize your business model, and generate returns that exceed your cost of capital?
Here are five essentials for growth, using the example of a privately held aerospace company that reinvented itself and in the process created a new business providing services to government defense departments and aerospace companies.
This is the story of one company, but it is applicable to many.
1. Engage leaders in creative, innovative strategic planning. The chairman recognized that the value of his company could be enhanced by engaging an experienced leadership team and a disciplined strategic planning process. He sought an analysis of the core and adjacent business lines, such as engineering services; maintenance, repair, and overhaul; and manufacturing, as well as a review of support functions including finance, human resources, information technology, and legal. The company’s CEO, formerly the CFO, quarterbacked this process and helped challenge his team to better understand its changing aerospace market, customer requirements and product lines. The team met for three full-day workshops, three to four weeks apart, to complete necessary analyses.
2. Change your paradigm. The strategic planning process moved beyond simple cost-cutting and approaches focused on strengths, weaknesses, opportunities, and threats by engaging strategic business unit (SBU) and support function leaders to dream big about the top line. The leadership team identified more than 30 new opportunities for growth in existing or adjacent service lines and from support functions. In particular, the HR function recognized that staffing patterns were erratic, largely because of the company’s job order environment.
During the project peaks, the company hired expensive temporary mechanics and engineers. During lean times, it was forced to make hard choices, resulting in the loss of trained talent and intellectual property—sometimes to the competition.
During one strategy session, top executives had an epiphany and posed the question: “Could we retain our A and B employees by renting them to noncompetitive companies during our lean periods?” The implications were significant: turning a cost center into a profit center, providing job enrichment to top employees, and avoiding disruptions from staffing fluctuations.
3. Experiment with success. The CEO and the head of HR, during the strategic planning process, experimented with this new concept by contacting area companies to evaluate staffing market potential. To their surprise, local companies requested five engineers and 10 mechanics during the first week.
Companies had cut back their staffing to reduce fixed costs but had allocated funds for variable staffing. This concept would potentially meet a vital customer strategy for dealing with the same sour economy. The company’s ability to provide trained, experienced, and proven personnel gave it a key advantage over other staffing firms.
4. Be flexible. The HR support function was shifting to an HR staffing unit and eventually to a standalone company that required leadership and internal HR staff flexibility. Because the company's employees were being assigned to work for customers, management of those workers was taken on by the customers, with HR’s overhead costs covered by the new revenue generation.
It also helped cover the internal cost of recruiting employees for the aerospace company by shifting this responsibility to the new business unit. With the addition of “external” paying customers, the mindset shift had to be made seamlessly to ensure internal and external customer satisfaction. The HR budget therefore consisted of a cost center and an SBU.
5. Capitalize and build for the next generation. The new SBU, which got its start providing a few temporary employees, eventually became a new full-service company offering:
In summary, CFOs are well-positioned to transition their leadership teams and companies from a cost-cutting, recession mindset to one of focused, innovative growth.
Rate this article 5 (excellent) to 1 (poor). Send your responses here.
Bob E. Paladino, CPA, is an adviser and trainer, and author of dozens of articles and three best-selling business books. He is scheduled to lead a workshop on July 22 at the AICPA Financial Planning & Analysis Conference in Las Vegas.