In her two decades in financial management, Lavinia Koh has seen the role of CFO expand beyond its traditional confines. As auditor with KPMG and PricewaterhouseCoopers, she worked with finance departments that were mainly concerned with compliance and reporting the past.
When the CFO Has to Push the Envelope
As CFO herself of Cable&Wireless Worldwide in Asia Pacific, Koh went through a period when the focus was on Sarbanes-Oxley implementation. “I have had my time changing all the different processes and making sure that they’re all aligned from a risk management perspective.” Today, finance and reporting are only “basic expectations for a CFO,” says Koh. “The real value of the CFO comes from how we work with the business in achieving an outcome, whether long-term strategic or short- to medium-term operational.”
Koh spoke to CFO Innovation’s Angie Mak on financial management at Cable&Wireless, how finance works with the business side, the company’s response to the global recession and other issues.
How has the role of the CFO changed? You’re obviously very hands-on with strategy at Cable&Wireless Worldwide.
I would say that in the last five years, the CFO has needed to be together with the business in decision-making and in giving guidance. This means that you need to provide the right information to the business to enable them to operate more effectively.
As a result my team is always running analysis of the financial data. This is not just normal standard reporting but is about taking information from the different systems and trying to understand what it is trying to say about business performance and whether this information can be used to change an outcome. This is how financial data can help the business in decision-making.
Some five years ago, the CFO was more concerned about complying with reporting standards. We have gone through the Sarbanes-Oxley era. I have had my time changing all the different processes and making sure that they’re all aligned from a risk management perspective. Those are now basic expectations for a CFO. You are expected to be technically competent – in cash management and reporting the financials – but the real value of the CFO comes from how we work with the business in achieving an outcome, whether long-term strategic or short- to medium-term operational.
Some surveys have found that CFOs wish to have a bigger role in strategy-setting, but they seem to be better at reporting the past and hesitant to make forecasts about the future.
The level of contribution may depend on the depth and breadth of experience that one has in the industry. I’ve been in the telecoms industry for 13 years and have sufficient familiarity with the ins and outs of the business and the industry as a whole, as well as also the history to be able to add value.
A lot of people think finance is a generalist sector and you see examples of people moving seamlessly across different industries. There may be exceptional professionals who do not have any problem going into new industries and picking up the issues and driving the business. But from my personal experience, some industries such as telecoms can be quite specialised, and require industry knowledge to really be able to contribute effectively to the business.
You have to do your homework.
I’m always talking to the pre-sales and sales colleagues and this keeps me in touch with the business activities. I also look at the Work-in-Progress schedule to assess the order-to-cash risks and will often sit down with the project manager to get an appreciation of progress.
For the business, finance provides an independent viewpoint, because there is no personal agenda – my focus is around ensuring we are achieving our performance metrics. The numbers can tell a story and can highlight where [things are] not working. My role is to provide guidance and give recommendations. This is the important value-add finance can bring part to the management team.
My view is there are three pillars where finance can provide support to the business. The first one is commercial. This is where the pricing team goes out with their sales colleagues and faces the customer. It’s very important because the pricing colleagues have experience and knowledge of the market, and across the competitive base, so they can give guidance to the sales team.
FINANCE AND THE BUSINESS
The pricing and sales teams work closely?
Yes. For the pricing team, part of that has to be about bringing balance to the potential deal as sales may want to drop a price to close business quickly. The pricing team would have specialist knowledge to come up with an alternative solution, and can steer sales in the right direction.
Is the pricing team in on every deal?
At the moment I would say almost every significant deal. There are some simple opportunities which do not require specialist pricing, and the sales colleague can quite easily access our pricing tool.
You mentioned finance can help the business with three things?
I think finance can help in performance management by working together with sales management on the targeting of the sales colleague. It’s important that our sales target and commission scheme rewards our salespeople for success and also delivers the business outcome we need. For us at Cable&Wireless, the sales teams are an important factor driving new business development.
The last area in which finance can add value is advising on the investment decision for additional operating costs or customer direct investment for a particular deal, or general infrastructure investment. Finance can add value in the decision-making and post-implementation assessment.
Our business model has been to manage investment risk by anticipating the business requirements and investing at the right time. This means that some of our significant investments have been customer-led.
As a result, we tend to recruit quietly, rather than in bulk. Our senior managers are always looking out for talent. Our industry is so small so from networking we have a view of where the good people are hiding.
How did Cable&Wireless Worldwide respond to the challenges of the recent global recession? Did you trim expenses, cut back on investments?
The financial crisis was business as usual for us. We just continued to focus on our execution. Prior to the crisis, a lot of companies had access to easy money, and I think they took significant risks. We were not in that position and we handled our growth in a disciplined manner. If you look at the results that were issued last March 09 – our year-end is March – we had one of the best results in the City [of London].
When some of our competitors decided to release sales people, we took advantage of the situation and added to our team. During the crisis, we had continued to expand in Asia and add new name customers. We continued to invest as in pre-crisis mode, in line with customer needs. We did not hold back our decision- making.
I’m not saying we have not made mistakes on our investment decisions. Ten years ago we spent so much money we ended up in a situation where five years ago our global business was haemorrhaging more than 1 million pounds a day of negative cashflow. Since then we have had a new management team in the UK, and the whole business has had a successful turnaround. Today we’re generating cash and growing. You can only do that by staying focused and executing your strategy.
We have learnt the lessons of the past and also new ones along the way on what works and what gets results. If the business says “We want to go off and open three more offices in Japan,” I’ll be thinking, “How does that fit with our Japan strategy today and is this for acquisition of new customers or supporting existing ones? Do we have a good target market and how do we intend to execute the acquisition of new business?”
It is always easy for the business to spend money – my role is to ensure this is done wisely. Note the converse is also very true – accountants love to cut costs, but this does not always get the right outcome. What we try to achieve is the balance of placing our bets on the right areas, so we actually increase our topline – that would be a great end result.
Didn’t your customers stop buying because of the recession?
The answer is. ‘not necessarily,’ because in response to what our customers were looking for, we helped them in managing their telecoms operating costs, and this does not necessarily mean cutting what business they have placed with us. As an example, we have a product where we can help our customers manage their mobile costs through better visibility and control of their spend, helping them save up to 30%.
So they were spending to save.
It may not be apparent how you can achieve savings from investment in your IT infrastructure, but for example, if you have collaboration and a unified telecoms estate, that means that anytime your sales guy or colleague is travelling, they stay connected using the lowest cost connectivity. The other favourite is to invest in an upgraded video system which can reduce the need for internal travel significantly.
In a unified communications environment, a sales colleague on the road can see when a customer has left a voice message on his landline at the base and he can access and respond to it. From his status, his manager can view when he is online and accessible. Do all these things achieve efficiency? I would think so, because there is immediate access and faster response.
Fifteen years ago, people never used emails – they fiddled around with the fax machine. Today, we must be doing more with the same [number of] people, because by scanning the paperwork, and emailing, the response is faster.
An example of how processes supported by technology can improve efficiency is where we have an Internet portal for customers to place their order, instead of having to send you a piece of paper and someone in our organisation collects that piece of paper, opens it and transfers to a second person to type the information into the system and so on. By using technology we can improve accuracy and redeploy the headcount.
WORKING WITH THE CIO
Can we talk about your working relationship with your CIO or CTO?
We do not have a local CIO or CTO in our Asia organisation. We have a Vice president that manages the network infrastructure. We have a good relationship with him, and work together on investment decisions and cost management projects.
My view is the CIOs and CFOs should work closely together because they have and support the same goals. The CFO should support investment in IT to bring about changes in the business, and to bring out efficiencies and synergies where possible. I’m one of those people who believe that IT can change the business environment. So I don’t think there should be any relationship conflict between them.
CFOs are in charge of the IT department more than ever…
This is hardly surprising because information is power and information helps you run a business. So with that in mind, having the CFO having responsibility, or if they didn’t have, to work closely with the CIO, would get to the right outcome.
If you expect all the senior management to have financial goals in their objectives, I think as long as your objectives are aligned, then the management team should work quite closely together.
Do you as CFO help them with their financial objectives?
The role of the CFO is to help the business set financial objectives and help deliver the outcome. Goal congruence will ensure that the management team is moving in the right direction.