Enterprise Management & Optimization

November 5, 2020

Optimizing any business requires collaboration amongst all functions. More communication between departments opens doors to opportunities and addresses complex challenges. As CFO, it is best to view potential opportunities proposed to you from other functions as an investment before seeing them as a cost. This is in-line with the strategic mindset a modern CFO needs to have. Open-mindedness leads to innovation, which leads to an enterprise that is optimized to outperform and outlast its competitors.

Three primary drivers of effective enterprise management & optimization are Asset ManagementRevenue Drivers, and Profit Drivers, in addition to other supporting areas.

Asset Management

Some examples of asset management focus are asset turnover, reorganization, supply chain, logistics management, sustainability, legal strategies, etc.

Reorganization

Corporations reorganize to improve the bottom line and increase overall entity value by securing more excellent market prowess or shedding less profitable operations, assets, and liabilities. Corporate reorganization commonly occurs following new acquisitions, buyouts, takeovers, spinoffs, other forms of new ownership, or the threat or filing of bankruptcy.

Frequently, reorg and restructure are not good news for the incumbent CFO if they are recovering from challenged operations. This is not the case for reorganizations that are complimentary to positive actions to grow the company. Mergers will generally displace one of the existing CFOs since only one is needed going forward. Leading as CFO through a successful reorg means having the right strategy in place. During any of these times of uncertainly in future operations and structure, it is essential to focus on key team members and high performers, assuring they are encouraged by the company’s actions as much as possible and not concerned with their future role in the reorganized entity.

Legal Strategy

Legal is a profit center in many companies. The CFO and general counsel (GC) need to have a great partnership to create an effective legal strategy. CFOs should consider suits as potential investments before a cost. Litigation finance should be a part of the conversation when discussing the viability of pursuing a case.

Sustainability

The environment and social impacts of the business are increasingly important to business managers. The public demand for sustainable business practices is no longer only a political discussion. The market is rewarding and punishing companies on either side of the effort. This is yet another area where the CFO should weigh in with the objective, financial perspective in strategy development. CFOs should consider operational efficiencies and cost savers when executing a sustainable strategy.

Revenue Drivers

Some examples of revenue-driving activities are globalization, sales management, marketing management, big data analytics, data mining, etc.

Big Data

From a world where companies were data starved, they now have so much they don’t have enough capability to make sense of the data. The CFO-CIO is especially essential when it comes to getting the most out of the data. Data capture, storage, analysis, and visualization are significant challenges that need to be managed by high-quality talent. All play a large part in creating effective predictive analytics that can lead to strategic success. Profitable mining and data use can lead to cost reduction, faster decision-making, new products, and more.

Globalization

For many businesses, globalization should be a primary objective. As part of the decision to globalize, the strategy needs to consider the financing, investments, operations, and other new complexities. The CFO will lead the finance charge responding to questions, such as which assets should be geographically reallocated and how to handle cash repatriation. Further layers of tax complexity get introduced, and the finance department needs to be well-equipped to take this complex area. Risk management will also play a large role in determining what threats to the business arise in global expansion.

Legal, HR, and tax compliance can present substantial challenges to global strategy. The CFO guides this process of keeping costs low and growing rapidly as old products are revitalized, and new markets open fresh opportunities. The strategy and planning phase of the globalization process is, in many ways, more important than its execution.

Profit Drivers

Some examples of profit-driving activity are cost drivers, automation analysis, restructuring & simplification, outsourcing, and six sigma.

Outsourcing

Outsourcing is a common way many companies dramatically reduce labor costs. Outsourcing involves hiring an outside organization, unrelated to the company, to complete specific tasks. Outsourcing should be a part of the overall growth strategy, identifying areas where it is most beneficial. Outsourcing is most helpful, where it reduces the most expenses related to overhead, equipment, and technology. As the growth strategy matures, part of the outsourcing strategy needs to identify the right time to take ownership of those currently outsourced activities. In theory, outsourcing is generally only affordable in the short-run until the company has the wherewithal to own the labor, equipment, and technology relevant to completing the task.

Six Sigma

Six sigma is a quality-control methodology suitable for most any company. Six sigma traditionally relies on the DMAIC improvement cycle. Define the problem, goals, and scope of the project. Make sure to fully understand all components that will output data relevant to the improvement of the process. Measure involves tracking components outlined in “Define” and collecting all relevant data. Analyze the data gathered and draw conclusions based on the evidence. The more causal relationships you find between data, the more potential you have to improve the process. Improve the process through testing of various solutions. Often the advice given in this step is to go with the most obvious and most straightforward answer. Create an implementation plan and execute it. Control is the continuous step after the process improvement has taken place. Now the goal is to monitor the system and reduce deviations from the target.

Questions to consider:

  • Is your business operating sustainably? Does finance play a role in helping evaluate sustainability strategy?
  • Do the CFO and general counsel in your company have a great working relationship? Is legal stuck on a limited budget, or are legal opportunities viewed as potential investments?
  • Is your business global? If so, have the challenges related to HR, Legal, and Tax been sufficiently addressed by finance?
  • If your company isn’t global, is there a strategy in place to enter international markets in the next 1, 5, 10 years?
  • Is your company routinely finding ways to optimize through data analysis? Does the CIO meet with the CFO regularly?
  • Does the company perform ongoing optimization and evaluation reviews, including simplification, automation (RPA), and standardization?
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