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2009 Operating Plans and Strategy

As most of our clients are currently finalizing their 2009 plans, I thought I'd share some of the insights from the recent annual MIT CFO Summit on operating in the current economic climate.  CFOs from major public companies like Microsoft, Broadcom, and Cardinal Health mixed with financial professionals from smaller New England based companies, primarily in the technology industry.

One of the first speakers began his presentation stating that 2009 will be a mess, so start planning now for what you want your company to look like in 2010.  Microsoft's North American CFO, John Rex, asserted that when we emerge from this downturn, we will all be managing our operations and managing our cash differently than we’ve been doing in the past.

Some of the recurring themes were:
 
• Be vigilant and maintain good visibility every week, not just every month or quarter;
• Take advantage of opportunities in the current situation to position your company for the upturn in the economy.  For example, buy ailing competitors or complementary companies;
• Use the opportunity to hire the best and brightest, while replacing low performers so your team is as strong as possible when the market turns.

A number of the differences in the way we operate will be fundamental, but some will be just as important for appearances and establishing a cost conscious company culture that is efficient beyond the crisis.  For example, automotive executives flying to Washington in private jets to ask for a bail-out is not egregious solely because of the cost.  Travel is a great area to put some focus.  There are opportunities to reduce cash outflow and to get employees and managers thinking about how to achieve company objectives as efficiently as possible.  The goal is to come out of this economic crisis with a stronger and more competitive company, not just tough it out. 

Other good tips from the experienced CFOs at the Summit included:

• Scenario planning should include liquidity scenarios and capitalization scenarios, and have a plan if bank loans or outside funding dries up.   Plan now for how to manage cost reductions, and  go to your board now with solutions for various scenarios.  Rather than starting the discussion with the board about what to do when a crisis develops and wasting critical time on trying to get consensus, management can focus on execution and stay ahead of problems.
• Visibility is critical at this point.  Management needs to stay on top of the numbers, but more importantly the drivers behind the numbers on a weekly basis.  Trusting the data and understanding the variances and assumptions behind the data is critical for maneuvering in a volatile environment.
• During difficult times like this, management should not just have a knee jerk reaction and start cutting across the board.  Maintain focus on building the business.  Don’t cut R&D and other critical activities with set cost reductions across the board.  Management needs to keep focusing on developing people and sharing best practices and investing in the workforce.  Do everything available to reduce all other costs, but make sure to have the best people in position for when the economy emerges from the crisis.
• Make sure to be a good communicator, especially as a CFO, but if it comes down to being upbeat or being credible, credibility is more important.  Morale is incredibly important to get through a difficult market, but trading-off credibility for being upbeat in the end will result in lower morale.  Take advantage of the opportunity to communicate in tough times and get ideas from the bottom up (from employees) and from the outside (from customers).
• Be tough on sales productivity.  Identify who is productive and who is not, and cull the low productivity sales people.  Make sure new sales people ramp quickly – measure it.
• Be in the middle on benefits.  Benefits should not be the reason employees work for a company, but they also should not leave the company because of benefits.
• Most CFOs who commented on this topic did not expect the economy to turn around until at least the second half of 2009 at the earliest.

Once again, the MIT Sloan School Alumni put together a terrific conference with useful insights for CFOs on navigating these uncertain economic waters.