As companies shift their attention from fighting the crisis to getting the most from the recovery, chief financial officers (CFOs) must keep themselves focused.
The credit crisis and its shocks to the real economy have put CFOs on the front lines, as they implement emergency measures to help companies survive the recession. Now, as an eventual recovery begins to seem more likely, the CFOs’ task may become more complex.
Even for those whose companies avoided the most severe effects of the crisis, uncertainty about the future is abundant, and credit remains tight. Capital and management time are available for only a few relatively big moves, and a new appreciation of risk accompanies each opportunity.
So the CFOs’ judgement will be critical to push the management team’s thinking on the opportunities and to cast a dispassionate eye over the costs, benefits, and risks of pursuing them. Here are 10 questions we think all CFOs should be asking themselves and their executive colleagues as the recovery approaches. Read the questions and tell us what you think a CFO’s priorities should be coming out of the crisis.
What shape will a recovery take? Even if the worst is over—though we make no assurances that it is—much uncertainty remains about the recovery’s nature and pace. A steady recovery over 12-18 months, would pose challenges very different from those of a tepid one over, say, five years or even a slip back into recession. What weight are you giving to the possibility of wage and price inflation, high unemployment, lower international trade, or dramatic swings in currency values?
What’s more, if excess leverage inflated demand and profitability in the years leading up to the crash, CFOs must help managers to understand what they should expect as normal after the crisis has fully passed and to set appropriate performance targets.
Have you restructured enough? A weak economy makes it easier to implement unpopular operational changes and divestitures: companies have more leverage over suppliers, unions and regulators are more cooperative, and employees understand the need for change. When the economy strengthens, these advantages will quickly vanish. CFOs should challenge their colleagues to examine how much more restructuring might be undertaken to secure a company’s cost position for the medium term.
Is your supply chain sufficiently flexible? In 2008, the key question was what would happen if the downturn was worse than expected. In 2009, it’s worth considering what happens if the surprise comes on the upside. An intense focus on reducing costs and working capital will leave many companies incapable of responding to a rapid pickup in demand. Can they respond without either bringing back high costs or cutting the quality of their products? If not, CFOs should take time now to consider whether their companies may have stretched the supply chain a little too thin.