Springtime is here. Growth is everywhere – but is your company growing? Growing a start-up company has many challenges. Driving new growth in an established business can be equally as challenging.
Enabling innovation in a medium to large company can be difficult if the culture isn’t supportive. Getting new products or services off the ground can be tough if employees are consumed by existing business requirements. Pursuing acquisitions and integrating new companies brings new risks into the picture.
Finding new growth in your business was the focus of the New Jersey Chapter of the CFO Leadership Council for its April 2016 panel discussion.
Moderated by me, the panel included a number of executives with experience driving new growth in businesses. Panelists included Larry Harding, Vice Chairman, Executive Director Corporate Development at Radius, Burkhard Zoller, CFO at Evonik Corporation, and Alice Gash, SVP & CFO at TeaWolf.
Here are the highlights of the panel discussion.
Driving Higher Organic Growth
There are many ways to drive new growth in a business. A simple one is just getting more revenue from existing products and services by expanding sales channels. The panelists discussed some of the best practices in expanding direct sales channels, including recruiting the right sales staff, as well as providing the right training and incentives.
The panel also discussed the opportunity to expand indirect sales channels. Signing on channel partners or distributors can be an effective way to extend the reach of the company and increase penetration of existing and new markets.
But like with recruiting sales staff, recruiting and signing the “right” partners is critical, as is providing the right training and support to ensure rapid ramp-up and productivity. The CFO must also factor in the additional costs that will be incurred by using third-party sales vs. direct sales and the impact on margins.
Launching New Products or Services
Another way to drive new growth in a business is to develop and launch new products or services. One of the challenges here is enabling innovation within the organization so that new ideas can surface and be evaluated. One panelist spoke about an awards program his company implemented to incent line of business staff to innovate and submit new product ideas for evaluation.
The panel also spoke about the role the CFO should play in evaluating new product or service proposals and determining the expected ROI and payback from the investment. While driving new top-line growth is important, it’s also important to ensure new revenue contributes to bottom-line growth.
Here, though, the panel stressed the need to ensure that new products or services that are introduced aren’t just driving short-term revenue, but are creating a repeatable, sustainable revenue stream.
Also related to this topic, the panel spoke about the best practice of having dedicated financial staff embedded in the Business Units and reporting to the CFO. This approach provides a valuable resource that can help line-of-business executives with financial planning while providing control. It also provides valuable experience for Finance staff interested in broadening their skills.
Incubating and Creating New Companies
A topic related to launching new products or services is incubating and creating new companies. One of the panelists highlighted a venture capital arm that his company created to identify and invest in new business opportunities. This was a small group chartered with investing in start-ups that could create new products or services complementary to the company’s existing offerings.
In this case, it’s important for the CFO to have visibility into the investing activities of the venture capital arm and to evaluate opportunities to fully acquire a company once it becomes viable – or to consider a spin-out if the new company’s products or services don’t fit with the strategy of the company.
Mergers and Acquisitions
Another way to drive new growth in a business is by acquiring other companies with complementary products or services. The panel discussed the risks of acquisitions and some examples of deals that didn’t yield the expected results. This often occurs when the acquisition becomes emotional on the part of the CEO. So it’s important for the CFO to take the lead in evaluating the financial impact of an acquisition, as well as the strategic fit, to minimize the risk of making a bad acquisition.
The panel also discussed the importance of integration planning early in the evaluation process of a potential acquisition. Waiting to start integration planning until the deal is done can be paralyzing to the acquired company as executives and staff go into limbo over job security. Best practice is to form a cross-functional integration team early in the evaluation process and to have the integration plan ready to execute on day one.
Then, it’s important to communicate quickly to the staff of both the acquiring company and the acquired company what the integration plans are, who’s in charge of each function, and which staff are to be retained vs. transitioned. The CFO should take a leadership role in this process – especially in relation to how key business processes and systems will be integrated post-acquisition.
Entering New International Markets
International expansion is another opportunity for driving new growth in a business. For companies operating only in the US or North America, expanding into the UK, Europe, Asia, or South America can provide growth opportunities –but also carries risks.
The panel discussed the need to “follow your customers” and support global operations by providing local production and support capabilities. But companies must also evaluate the risks of setting up operations in new international markets.
The CFO should take a leading role in identifying and evaluating international expansion opportunities. This includes not only the financial investment and expected return, but also assessing and navigating through the legal and regulatory requirements of entering new markets. And there are third parties who can be engaged to help companies manage many of these issues, such as legal entity structure, recruiting and staffing, acquiring office space, and banking and regulatory filings.
Planning and Monitoring Is Critical to Sustaining Growth
Given the slow growth expected in the US and the global economy in 2016, this was a timely discussion that generated a number of questions and comments from the audience. It also got me thinking about the role enterprise performance management (EPM) applications can play in helping organizations find new growth in their businesses. There are a number of opportunities here.
For example, the “what-if” modeling capabilities of an EPM suite can help organizations model the impact of potential acquisitions, new product introductions, or international expansion. Then, if these opportunities are pursued, the planningmodule of an EPM suite can enable the organization to establish detailed headcount, capital, and operating expense budgets for the new initiatives.
In addition, the consolidation module of an EPM suite can help organizations quickly integrate the financial results of acquired companies and systems, and can also support the consolidation of financial results from global operations. This includes the handling of currency translation, intercompany eliminations, minority ownership, and reporting of financial results in US GAAP, IFRS, or other standards.
Finally, the reporting and analytics capabilities of an EPM suite can support the ongoing monitoring of the financial results and key performance indicators (KPIs) of a new venture. These capabilities can also provide rapid and deep insights into why the new venture is over-performing, or under-performing, against the original plan so that adjustments can be made over time.
To learn more read this white paper about Jazz Pharmaceuticals and how they leveraged cloud-based EPM applications to support their growth strategy.