Before writing this book, I had often asked myself a simple question: If I were to become a CFO or a CEO of a high growth company, what check-list would I need, placed on my office desk, which I can quickly glance through every morning? There is so much going on in a typical company that it is natural for any CEO or CFO to lose track of the “real value add” and get bogged down by meetings, seminars, conferences and other activities. The objective of this practical guide is to remind CEOs and CFOs every morning the following three fundamental questions:
(1).What are the key functional focus areas of my organizations which would need my direct attention today and every day – both in terms of organizational structure and thematic areas of prioritized importance?
(2).How can I ensure Value Creation activities across the Value Chain of my company? What baby steps should be undertaken by different actors and players on the Value Chain to build creative value and eliminate 80% of non-value added activities?
(3).What specific measures must be taken, both in the short and long term, to improve the bottom line of my company?
The key points discussed in this book are summarized below:
(1).Revenue growth can bring positive changes to margins only if costs are contained within a prescribed range. Overshooting of costs will dilute the positive impact of revenue growth.
Organic revenue growth, built around sustainable core competence and growth market, plays a critical role in margin improvement.
(2).Robust revenue and margin forecasting is vital to identify growth projects with positive NPV. Picking up wrong projects leads to waste of resources as well as opportunity cost of lost revenue.
Companies must balance Volume-Profit goals and this can be achieved by restricting price erosion of key products. Volume gains, based on discounting alone, would most probably erode value in the long run.
(3).New Product Introductions, if planned properly, can go a long way toward enhancing margins and therefore Shareholder Value. The key element of NPID success is a strong and credible management, who can take right decisions at right time and execute timely development as well as commercialization of an effective portfolio of products.
(4).The Management, from senior leadership to project management, should be matured, seasoned and empowered to execute core values of the company across the “value chain.”
(5).Management focused on short term profits will not generate the necessary torque to generate value across company.
(6).Cash Conversion Cycle (CCC) is an important measure of “liquidity management” and therefore “on-going concern” assumption of the firm. It is imperative for the health of a company to stay solvent. Shorter cash flow cycles lead to positive expectations about the profitability of a company; and therefore its stock value.
(7).Sales and Marketing should work in tandem geared toward twin goal of short term revenue growth and long term value creation.
(8).“Operational effectiveness” plays a critical role in enhancing productivity (efficiency) and strengthening operating margins. Cross-functional business processes should be aligned across the “value chain”; and documented thoroughly. This will reduce COGS (Cost of Goods Sold), control COPQ (Cost of Poor Quality) and strengthen the core processes across the “value chain”.
Effective Supply Chain management can have a direct positive impact on margin improvement; through multiple channels including lean operations, efficient logistics and six sigma cost savings.
(9).Finally, intangibles can lead to value creation to a great degree if managed effectively.
In brief, the focus of this book is to help companies make themselves nimble, smart, efficient, cost effective and responsive organizations – and thereby improve gross and operating margins both at the product line and corporate level.
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