Perform or Perish
by Mark Eggleton
Australia’s relative isolation from world markets has historically served local business well as many of our leading organisations have been quarantined from the strong competition they would have faced in more dynamic markets.
This old dynamic has changed dramatically in the last decade and many of our most recognisable names are struggling. In a world where agility and dynamism are needed to survive some Australian companies are falling down.
Speaking with a number of Australian business leaders as part of the Chief Future Officer series, the general consensus has been many Australian businesses don’t think they are even moderately dynamic or agile.
Yet while these leaders feel trapped in a rut, there are some who are embracing the new world of permanent volatility and the need to be flexible.
Moreover, it’s these companies, which are leading the charge in investor markets as they constantly look for ways to innovate and stay ahead of the curve. Companies such as Domino’s Pizza are a high innovator, according to BT Investment Management Portfolio Manager, Noel Webster, in terms of management style and in terms of adopting digital and online as a distribution channel.
“There are not many in the small to mid-capital space in Australia that are innovative and agile but the ones doing it well are offering investors great returns,” Webster says.
The conundrum for the nation’s chief financial officers is trying to juggle that need to change and adapt quickly with the more traditional measured approach of finance.
For ASX CFO Ramy Aziz, the need be more innovative and agile has become an imperative for CFOs with whole industries undergoing constant disruption.
Aziz, who also acts as a CFO mentor at the Financial Executives Institute, says the CFO can play a part in being innovative while still acting as a voice of reason in an organisation.
“The CFO’s role is to look at new opportunities. It’s not about disrupting the business but investigating new opportunities and strategising with other management and costing them out,” he says.
Aziz believes the CFO role has moved away from the hard focus on pure financial and statutory accounting.
“We’ve moved more towards becoming business and strategic partners. It’s about assisting to implement and develop strategy.
“It’s much more commercial than it was and much more risk-focused than it has been in the past.”
For Aziz, this is just a reflection of a business environment where there is more focus on capital and risk.
In a more volatile environment CFOs are moving away from being traditional accounting gatekeepers.
“We have to be more forward thinking and look at the external risks facing the organisation. It’s a much bigger role strategically.
“CFOs still need to ensure the underlying controls are there but they must be more outward looking. It’s not about constraining the business but helping it to grow without losing sight of the core principles of financial controls and not paying too much for assets,” he says.
This need for commercial acumen and ability to strategise beyond the numbers was cited by 64 per cent of CFOs as the most important attribute to have in the 2014 Hays DNA of a CFO Survey.
CFO's role 'vital'
What’s more, over a quarter of the 500 CFOs interviewed suggested having a strong operational knowledge and partnering with operations was vitally important to their success.
Another 66 per cent* suggested the new generation of CFOs should be more closely involved with their organisation’s operational activities.
For BTIM’s Noel Webster, the CFO’s role is vitally important when his team is looking to invest.
“We take a close look at the management team and while the finance team plays a secondary role, it’s an important one.
“Some of our best investments have been where we’ve seen a strong CEO matched with a strong CFO. Often that’s a very powerful combination.
“It’s a strong tag team. Strong in building trust, with a strong strategic leader and it’s strong on numbers so we can build a high level of trust in the numbers because (as a team) they can interpret and present those numbers in a meaningful way,” Webster says.
Yet beyond the numbers, Webster reiterates the need for Australian organisations to be innovative and agile.
“We are operating in a fast-changing and more challenging environment for management so the big question is do we look at innovation or the bottom line.
“There’s an old adage ‘Keep your eye on the ball rather than the scoreboard’ and for us the bottom-line is more of an outcome when we assess companies.
“We rarely make money by looking at the financials. The financials are often risk mitigation or a double check on how we might put a value on the business.
“In terms of what drives future outcomes of a business, which is itself expressed in the bottom line, we look at strategy, management and execution. Innovation is a key element of that in the business."
Motivation the key to success
Director of the Department of Industry’s Entrepreneurs Infrastructure Program, Doron Ben-Meir suggests we lag behind in the mid-market because management often gets too caught up in the process.
“It’s not always about the numbers,” Ben-Meir says.
“Before you get the numbers there will be hard times. There has to be something that inspires you beyond the numbers. Successful entrepreneurs are not just driven by financial gain. Financial gain is the scorecard of success but the motivation is deeper than that.
“Inspiration is what keeps them going when everyone else might give up.”
Ben-Meir says the founder or the owner drives both innovation and business success.
“It’s important to bring on board a good CFO and management team but the ‘chief inspiration officer’ is the founder or owner.”
Yet while the owner of founder of a company might drive the initial success of a company, it often falls to the CFO to manage expectations and perceptions in the market.
It’s here where a good CFO not only needs to be onboard as an innovator but also must be able to communicate that strategy to a sometimes sceptical investment community.
The ASX’s Ramy Aziz says this is new ground for CFOs.
“It’s a trait growing in importance as you’re mindful of how investors will react and what they will think of what you are doing.
“While it’s important to present as being innovative and agile, you have to be able to bring investors along for the journey so they are aligned with your strategy. To get the right sort of investors onboard you have to ensure you fit their mandate.”
He says it’s about communicating equally well with investors as well as internal stakeholders such as the board.
For Webster, that ability to communicate is vital right across the management team.
“Well over 50 per cent of our key investments in our key performing funds over the years have been through backing differentiated management teams.
“It can be quite a subjective thing walking into a room and finding that x-factor person who can genuinely drive a business, but it’s very exciting,” he says.
Execution is the 'killer app'
Unfortunately, Webster says, he often sees companies that aren’t agile and can’t adapt to change in their environment.
He says it can be a failure of boards to realise management is ineffective or on the financial side where businesses gear-up inappropriately. This reflects poorly on CFOs who may not communicate with their CEOs effectively.
With so much disruption across all business, Webster’s team looks very closely at how businesses face external threats.
“It’s a blend of quality management, their strategy and execution as well as the external environment. If you’re slow to move in a losing industry, it’s difficult to grow a winner out of that,” he says.
For CFOs it’s probably worth noting Saatchi and Saatchi’s Worldwide CEO Kevin Roberts’ words on management in a world of disruption.
“Leadership is all about connection, collaboration and creativity. There is no one size fits all any more and the new model of leadership is one where inspiration and collaboration are at the core,” he says.
Moreover, digital economy leaders have already turned management on its head.
Roberts says business leaders used to spend the overwhelming majority of their time assessing and deciding on ideas and precious little time executing ideas.
New economy leaders (right across a business) spend most of their time putting ideas into action.
“Execution is the killer app. Businesses flourishing right now don’t spend time explaining things; they do things. You have to be willing to fail fast, learn fast and fix fast. The fastest way to learn is by failing,” he said.
Roberts’ perspective reflects the belief of most of the key leaders we’ve spoken to in the Chief Future Officer series.
Put simply: we’re living in the hour of necessity right now and Australian business needs to pivot towards innovation and agility as quickly as possible.
It’s tough work and it has to be led from the top.
The key is to embrace the new state of permanent flexibility. Old ideas of doing business such as having a fixed end point have to go out the window. Companies need to be able to adapt and readjust their strategies overnight and this requires agile and transparent management and communication.