In today's ever-changing world, traditional methods of planning and driving efficiency are needing to be revised, as fast-evolving challenges, such as rapid technological advancements and economic disruptions, including a recent banking crisis and unprecedentedly high-interest rates, demand a fresh approach.
To thrive in times of crisis and uncertainty, organisations must adopt resilient and proactive business models that go beyond historical data and must be set up to prioritise risk management, scenario planning, and cross-function collaboration.
On June 29, 2023, The CFO hosted a group of senior finance leaders to discuss how to build resilient financial business models in a virtual roundtable that was led by Easwaran Venkatasubramanian, CFO at IBM Financing. The session was conducted under Chatham House rules so while this write-up will highlight key discussion points and takeaways, all participants are anonymised.
The discussion began with the participants acknowledging that times of crisis present opportunities for organisations to build robust and flexible business models. The group also raised the need to plan for the future while balancing short-term goals with long-term sustainability. The group also agreed that past strategies may not always apply to the current world due to evolving circumstances.
One participant shared their experience of navigating a crisis within their organisation. They mentioned the challenges they faced in adapting to changing economic conditions and the need to rework their budget. Despite the difficulties, they expressed pride in successfully overcoming the crisis and emerging stronger and healthier as a company.
The group then moved on to touch on the definition of a crisis and the need to adapt to unforeseen events. Emphasis was placed on the importance of a mindset to persevere through challenges and maintain a focus on the big picture. The participants mentioned the need for grit, determination, and clear communication to foster morale and navigate the crisis successfully.
Investor support was discussed, with one participant raising concerns about investor expectations during times of uncertainty and the impact on debt covenants. The participant who shared their experience reassured the group that their board was supportive and ahead of the situation. However, they emphasised the importance of open dialogue, transparency, and communication in maintaining positive relationships with investors and lenders.
It was agreed that the perspective of an investor and their behaviour have an impact on decision-making processes within companies. The participants acknowledged that companies often focus on what they believe is the right approach to overcome crises and emerge stronger. However, when considering the viewpoint of an investor, their perspectives and timelines will differ given the capital allocation and return on investment.
The importance of effective communication and understanding between owners or investors and the company’s management was highlighted as a key priority. One participant mentioned a case of a struggling food industry company and how they had to address issues such as excessive administrative expenses, high labour costs, and inadequate pricing strategies. It was the finance team’s responsibility to emphasise the need to teach companies how to analyse their financial statements and identify areas that require attention.
More to this point, the importance of taking the organisation’s employees along during challenging times and ensuring they remain motivated, and hopeful is of critical importance. There is a need for a culture that prioritises employee well-being and career development, to prepare them for future uncertainties. Having a clear vision for the company and individual departments was highlighted as significant, allowing employees to see the value they contribute and preparing them for potential difficulties.
Further still, throughout the discussion, the participants emphasised the significance of building an inclusive and diverse team that can provide varied perspectives. They stressed the importance of investing in people, establishing connections, and fostering trust to create a motivated and engaged workforce. The participants also discussed the importance of maintaining hope and optimism, particularly during challenging times, to keep the team motivated and focused on achieving goals.
One roundtable participant, who came from a military background, emphasised the importance of having a vision and a plan as a finance leader. They believed that leaders should confidently communicate their plans and include others in the decision-making process to avoid blind spots and ensure comprehensive thinking. The participant mentioned that different situations may require either a top-down approach or a collaborative solution.
The group emphasised the importance of strong leadership that sets a clear vision and effectively communicates it to the team. They highlighted the need for leaders to establish trust and build relationships with their team members, as well as other stakeholders. The participants recognised the significance of data-driven decision-making and understanding the key drivers of the business to influence them effectively.
They also discussed the importance of adaptability and flexibility in navigating changing circumstances and adjusting strategies accordingly.
Nonetheless, the challenges of leadership were recognised, such as managing different constituents in the public sector, dealing with bureaucracy, and adapting to changes in administration. The need for consistent communication and reiterated strategies to ensure alignment and understanding among team members were emphasised.
The participants also discussed the importance of over-communicating and reinforcing the vision and strategy, especially in remote work environments where face-to-face interactions are limited.
The conversation continued with a discussion on how large organisations can become susceptible to analysis paralysis, where excessive analysis and input from various stakeholders hinder decision-making. They emphasised the need to act quickly, accept failure as part of the process, and adapt to changing circumstances especially when times are uncertain.
The group moved on to discuss the challenges of budgeting and planning in uncertain times. They highlighted the need for flexibility in budgeting processes, as inaction is also a form of decision-making. They discussed the concept of a spring plan and a fall plan, where the spring plan focuses on long-term objectives and investments while the fall plan is more oriented towards the short-term operating budget.
They acknowledge the balance between science and art in budgeting, as uncertainties require flexibility.
The discussion then shifted toward the changing role of the finance organisation. It was suggested that the finance team should move beyond being mere reporters of performance and take on the role of a co-pilot to the CEO. It was emphasised that there is a need for finance professionals to be closer to the business, understand its needs, and become business enablers. The expanded responsibilities of CFOs were also raised, now that their role and involvement in strategy, transformation, and digitalisation have increased.
