Tuesday, October 26, 2010

CFO Rising west 2010 day 1 notes


CFOs are becoming overwhelmed by CFO Fatigue - constantly fighting to survive instead of planning to grow.  Many CFOs are sitting on large cash reserves in their company, but they don't know how best to spend them or whether to spend them at all and reserve them for future emergencies.  More than 2/3 of the CFOs surveyed this quarter said that if there was not a major economic recovery in the next year their companies would be at risk of failure.  More than 1/2 said they needed a recovery in the next 3 months.

Rajan Raghuram on the global economy
Rajan Raghuram author of "Fault Lines: How Hidden Fractures Still Threaten the World Economy
" spoke on global economic markets, and why we're in the situation we are in today.  Our problem comes down to inequality based on education in income.  The less educated population is drifting further and further away from the educated segment in income.  The government has tried to overcome this by decreasing the cost of money so that those with less money can spend as if they had more money by borrowing.  Other parts of the world are exporting their way to growth instead.  The recovery is being held back because of the debt that households and banks have in the US.  As a result sovereign debt to GDP in G7 is at almost 1950's level, in 1975 it was 1/3 of that.  Serious financial sector problem for small to medium business prevents lending in that area, larger companies can get financing, but smaller companies that fuel growth are probably going to be tight for 3-5 years.  The gap in education in a long-term threat because if we cannot bring up our educational level the value added products that we currently create here and provide overseas (making money in emerging markets) will also go overseas and we will lose.  We must concentrate on building what consumers in emerging markets need - not having them buy the things we think WE need.  For instance in rural India "Frugal" refrigerators that just cool, without making ice, are what they demand because the electricity is unreliable.  If you can get rid of the compressor - the refrigerator can run on a fan and a battery.  In the end - the medium term outlook is good with emerging markets, but the threat is still there from our economic and educational gap between the haves and the have-nots.

Edgar Ancona on banking issues

HSBC VP and CFO of HSBC, Edgar Ancona, talked about the new regulatory environment for companies both locally and worldwide.  He sees that regulators are not only making new requirements, they are also requiring banks to document their compliance as well as comply.  HSBC is positioning itself as a bridge between capital and trade-flow between companies in multiple worldwide markets.  The new regulations have given banks the message that they need to acquire and retain more capital and liquidity, but instant 24 hour access to bank accounts by both corporations and individuals makes liquidity harder since customers can cash out at any time for any reason.  Defined benefits plans are dead or dying in today's economy.  On the positive side there are stronger controls, and faster reporting cycles, an increased quality of insight to business needs, better cost efficiency and retention and growth of their global talent pools are all improving.  Edgar believes that to remain competitive we must continue to improve educationally our ability to understand and address overseas markets - not just our own.

Aon Hewitt on Cloud computing

Next I attended a session on SaaS finance applications and requirements by Aon Hewitt (the leading HR professional services firm in the world) and Host Analytics.  Historically SaaS financial apps have had problems with version control, broken links, reporting deficiencies, variance analysis, ad-hoc reporting, and creating a scenario models.  Solving these increase the efficiency of the financial modeling apps.  In addition problems with implementing measurements for those plans and making functional decisions based on them have limited their ability to see real improvement due to those models.  Aon uses Host Analytics, plus 2 other SaaS products in concert to provide a full life cycle for financial reporting.  The basic presentation boiled down to using SaaS tools to create consolidated financial reporting.  They key factors include achieving compliance certainty, forecasting and managing the costs of the risk, and then forecasting to allow us to reduce the risk  De-Risking happens when you identify and quantify the risk at local and global levels, and then take the information you gathered and globally based investment services.  The specific tools that Aon Hewitt uses is Host Analytics for accounting consolidation because it is fast, secure, customizable, and cost efficient.  Host Analytics matches the client's accounting cycle, accommodates complex corporate structures, is secure, and uses an excel-like interface for data entry.  It has a built in approval process and very sophisticated reporting.  De-risking is accomplished using PRisM an internally developed tool that lets them model risks and view both deterministic and stochastic outputs.  Greater Insight, another SaaS tool, is used to look at broader view and create a global view of their pension and benefits plans in a true-cost and ROI of pension and benefits plans in a global world-wide viewpoint.  The key product - Host Analytics allows the 3 programs to share information so that re-entry isn't necessary, though some data import/export is necessary between tools.  Enabling that integration is one of the things that Aon-Hewitt provides.

Negotiating software licensing and development contracts for profitability

Next I heard a presentation from Randy Roth, Partner at Corporate Contracts, a company that specializes in negotiating and managing corporate IT contracts and software procurement for large clients.  The #2 concern of CIOs in 2009 was controlling IT costs, and 62% of CIOs have put off important infrastructure or development projects this year due to economic conditions.  Not including experienced software negotiators can cost your company big money, since in many cases products are rolled out on an emergency basis because they are so urgent.  License models include:
  • SaaS - (annual term) Licensing in the cloud, also called hosted, or ASP
  • Subscription - (annual term) licensing locally but for a specific time frame 
  • Term and perpetual are the 2 types of licensing
  • With Perpetual licensing you only pay for maintenance if you chose to - and can continue to use the product even if you stop paying
In negotiations - information = power.  Both participants should walk away with the attitude that the negotiation was tough but fair.  RFP development is key to project delivery. Vendors train their salespeople monthly, quarterly and annually on collecting information and developing a specific strategy to get the sale.  Team members of IT teams are typically programmers or tech people who don't have the knowledge of how to combat these sales techniques.  Good negotiators should not reveal the time frame (since this allows them to dictate sales timing), the budget (with budget you've told them what you'll pay), team members (they can pump each member of the team for info separately), and management structure of the negotiation team (allows the vendor to determine who specifically to sell to and how to get to them).  Maintaining a single point of contact allows you to more specifically control the acquisition process.  When negotiating the contract, use and include in your own RFP the contract so you can use the number of changes and type of changes to weed out some vendors.

Edward Hess on the DNA of Growth

Next presenter is Edward Hess author of Smart Growth: Building an Enduring Business by Managing the Risks of Growth (Columbia Business School Publishing) and The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within, growing an entrepreneur business, the road to organic growth, leading with values, and the search for organic growth, So, You Want to Start a Business?: 8 Steps to Take Before Making the Leap, The Search for Organic Growth, and Leading with Values: Positivity, Virtue and High Performance.  He started out by stating that no position other than the CFO is more influential on growth within an organization.  Growth is NOT always desired.  Edward identified that High Organic Growth (HOG) companies were THOUGHT to have:
  • Cost superiority through outsourcing/offshoring
  • Innovative
  • Sophisticated diversified strategies
  • Unique products/services
  • Best talent
  • Visionary leadership
But the reality is that HOGs have:
  • Simple focused strategies (an inch wide and a mile deep)
  • Humble passionate operators (not necessarily visionary)
  • Were execution champions - need to get things done
  • Had high employee engagement - employees wanted to improve the company
  • Constant improvement was in their DNA
  • They were master learners and copiers rather than innovators and leaders
Successful HOG CFOs are Measurement Maniacs they measure everything.  To achieve growth they measure 4 major attributes of growth: improvements (better, faster, cheaper - low risk and high probability), innovation (doing new things that no one else has ever done - this is risky and low probability), Scaling (doing more of what you already do well - also low risk and high probability), and strategic acquisitions. 2x2x4 - top line growth/bottom line growth, short term/long term, 4 factors: improvements, innovation, scaling and strategic acquisitions.

HOGs love their customers more than their products than services.  Unsuccessful entrepreneurs love their products or services more than their customers.  Growth killers include ROItis, group think, arrogance, legacy models, penalizing mistakes, short-termism, and product centricity.  Good HOGs change their strategy daily and have a process for collecting new ideas changing their strategy constantly to add incrementally to the strategy.  Try small controlled experiments constantly to see if they work.   Good growth companies defer ROI until they've experimented and seen if the idea works using experiments.

Many great growth companies took 2-5 hires PER "C-level" POSITION in each growth company until they got the right team to accomplish constant growth.  In many cases outside help would have assisted them in creating the right team from the start, and creating it's culture at the same time.

One precondition for growth in most private growth companies is you need a strong CFO and a strong CEO working together to make the whole thing work since they balance each other.

Final notes:

As before - at the end of the conference. I will publish any books through an Amazon store for the CFO conference so you can buy them directly if you wish to.  In the book "Smart Growth" there is a growth audit that will help you measure whether you are growing well or not.

As a venue for a conference I can't really recommend the JW Marriott in Las Vegas despite relatively opulent hotel rooms.  I'd rate them a 3 out of 10.  The service in the restaurants is pathetic, the food is mediocre both in the buffet and at the sushi restaurant.  A collection of attendees waited up to 2 hours to be served even their first portion of sushi at the sushi bar and rather than offer comps or a discount on the ticket the personnel argued over which items had and had not been delivered.  The location of the conference center requires a trip through a very smoky casino to arrive.  Unlike many casinos on the strip the ventilation doesn't cope with even the minor smoke created during the week by the very small gambling crowd there.  Cigarette and cigar smoke creeps into the conference center - causing this attendee at least to sneeze and have a stuffy head and headache throughout the conference.

Day 2 is coming up!