As Seen in CFO Studio Magazine Q1 2017 Issue

WHY BUSINESSES WITH GLOBAL CONCERNS NEED A NEW DYNAMIC ON THEIR EXECUTIVE TEAM

-BY GEORG ANNEN, Chief Financial Officer, Unger / USA & Europe

To navigate a company through rough market conditions requires knowledge, experience, and leadership. Management teams rely first of all on timely and accurate financial data and detailed business analytics. ROI calculations, valuations, and future cash-flow predictions are other critical factors. All this can give a company a vital competitive edge — and this is where controlling comes into play. Such prognostic information is so essential to management decisions, and the responsibilities of the controlling function are so extensive that I prefer to call it “ÜBER-Controlling” (“über,” the German word meaning “in excess of,” “above,” or “over,” not to be mixed up with Uber, the mobile taxi service!).

Basically, ÜBER-Controlling consists of three functions:

1. Sales & Marketing Controlling: Information about revenue development by customer and product as well as volume/price/mix effects; success of marketing campaigns and price sensitivity; market-related versus cost-plus pricing models; price entry points for new-product development, etc.
2. Production Controlling: Information about material, labor, energy, freight, and other manufacturing costs in total and by unit; make-or-buy decisions; margin comparison based on standard costs and variance analysis; discounted cash-flow calculation for capital investments, depreciation alternatives, and inventory optimization.
3. Overhead Controlling: Information on so-called fixed costs per department (Selling, Marketing, R&D, Supply Chain, Admin) and cost category (Personnel, Travel & Entertainment, Consulting, etc.); comparison to budget and prior year expenses.

An ÜBER-Controller does not just collect data from these three functions. He or she adds another dimension to it: Instead of looking just backwards or at today’s performance, he or she concentrates on looking forward. Through strategic and mid-term planning, annual budgeting, and rolling forecasting systems, the future of the company is being shaped by the ÜBER-Controller’s involvement and expertise.

Reporting

Nevertheless, ÜBER-Controlling can only be successful when it works hand-in-hand with the financial accounting department under the leadership of the corporate CFO. Statutory financial statements for external information purposes (looking back) and management reports for management decisions (looking forward) are closely intertwined. Modern, fully-integrated ERP systems with new general ledger concepts and dedicated FI and CO modules can provide a multitude of management reports. For improved management reporting purposes, it is important to use notional costs for depreciation, interest, taxes, and asset and liability amounts based on actual market valuations.

The ÜBER-Controller’s role and responsibilities are critical for the success of a company. They transition the typical conservative finance function into a future-orientated, vibrant think tank. The more specialized and entrepreneurial the controlling knowledge is, the better is this individual’s support as a business partner.

The function of the ÜBER-Controller and his or her entire controlling team is highly delicate, because they are a hybrid in an organization. Whenever I discuss my concept of an ÜBER Controller, the question comes up: Are they part of finance or of an operational business function? The best way to deal with it is to have controllers sit next to the sales and production managers and be their day-to-day “sparring partners.” However, it is best for the ÜBER Controller to report into the CFO function, thereby guaranteeing complete independence and objectivity in their judgment.

As Seen in CFO Studio Magazine Q4 2016 Issue

LAND MINES AND REWARDS WHEN CORPORATIONS OPERATE INTERNATIONALLY

Moderator David Jansen, Partner at PricewaterhouseCoopers, promised that attendees would get great insights from “the top of the finance pyramid among global companies today” —and they did.

Discussing Tumi Luggage’s 184 wholly owned retail stores, Michael Mardy, CFO, said the decision to become a retailer and the model Tumi used in developing its retail presence in 75 countries might well be the reason why Samsonite offered to pay $1.8 billion to buy Tumi. Retail does not reliably make money for the company. But it generates a lot of cash, allowing Tumi to pay down debt. Furthermore, it’s been “a great way to build our brand.”

He said that “on average, the retail stores earn about $1,200 per square foot. Our wholesale business operates at about a 39 percent EBITDA margin, our retail business operates at about a 25 percent EBITDA margin.”

Mardy told audience members during the CFO Innovation Conference session, “I have basically replicated the McDonald’s operating model to expand Tumi overseas.”

Describing this operating model as a way to manage risk, Mardy, formerly CFO for a McDonald’s supplier, said, “We pick a local businessperson who really knows the market and we make them a distributor, make a sweetheart deal with them. Over time as we learn the market, we kind of flex our muscles and get a little bit more involved, making sure we’re giving the distributor his or her share of the profits.”

Bill Flynn, CFO for Sharp Americas, said his company’s practice of hiring distributors for the Latin American market is similar. (Like Tumi, Sharp Electronics is in the process of being acquired, in a deal with Foxconn.) “The key for us is protecting our brand,” said Flynn. “We’re careful in how we vet those distributors and then take them through extensive training. We set pricing standards for them, and we make sure that as they go to market, they are meeting those standards.” Sharp looks for distributors with good financial standing and presence in the region, and who have good knowledge of the market.

With its warehouse space, Sharp has followed a plan to keep the footprint small. “Since [2005], we’ve reduced our fixed warehouse square footage by 90 percent,” said Flynn.

To a question on how the panelists manage international risks and political uncertainties, Claude Draillard, CFO of Dassault Falcon Jet, said business jets attract a unique type of customer, 95 percent of whom are corporations, and some of whom don’t register the aircraft in the country where they are living. Not wanting to be ensnared in an illegal transaction, Draillard says, “We vet our customers before vetting our distributors.”

There are in fact no distributors, he added. “We want to control what’s being told to the customer before the sale and after the sale. We want to control the entire chain of value for the brand.”

The company’s training program, focusing on KYC (know your customer) “is absolutely necessary,” he said. Beyond that, “educating the sales force, educating those who are dealing with the customer, is a very important part of the CFO job, because [as CFOs] we are the backbone of compliance.”

With perceptions as pointed and candid as these, panelists gave the audience evidence that the CFO’s role in a global company requires, in Flynn’s words, “people skills, project management skills, and strong process knowledge.”

— Julie Barker