Not mere number crunching
WHEN it comes to managing a successful company, the primary concern for top executives is the health of their company’s bottom line and profit margins.
The task of business owners and chief financial officers (CFOs) is thus to ensure the company is never running in the red and the best business strategies are always applied.
To do so, finance professionals must be alert to new business trends and changes to the business environment such as consumers’ research behaviour and their purchase decisions, economic uncertainty, the price of commodities, supply costs and competitors’ strategies.
While finance professionals may not be able to change these external factors, smart allocation of company funds and investments can greatly mitigate the effects of these factors on the company, ultimately determining the continuous success of the organisation as well as its relevance in the business ecosystem.
In light of the many pros and cons as well as potential profits and risks of each investment opportunity, finance professionals need to be armed with the right skills and knowledge to ensure they do not orchestrate huge financial blunders, or worse, lead their companies to bankruptcy.
Expensive lesson
For more than 50 years, the Eastman Kodak Company was constantly in the Fortune 500 list and was well regarded for its imaging and photography products.
Despite being the first company to develop a digital camera in 1975, Kodak decided not to invest too heavily in the technology as the company was afraid it would cannibalise on its bread and butter film business.
By the time Kodak had pushed harder in digital technology in the mid-1990s, film sales had started dwindling and competitors such as Fuji, Canon and Sony had gained significant market share in digital photography.
Company shares that once peaked at US$94 (RM370.22) in 1997 had dropped to a meagre US$0.65 (RM2.56) in 2011 and the company filed for bankruptcy protection by January 2012.
The Kodak case has gone down as one of the biggest business and marketing fails in history, augmented by some poor financial decisions. These included choosing to invest in technology to improve film quality and creating products that supported its dated film business such as the Advantix Preview cameras, which used film but were essentially digital cameras that allowed users to view their pictures on a screen.
The company also bought pharmaceutical company Sterling Drug for US$5.1bil (RM19.87bil) in 1988 thinking that it would support the chemical process needed to develop film and prints, but it soon realised that the similarities between the two companies ended there. Kodak eventually sold Sterling Drug for less than half of what it originally paid.
Deeper understanding of the Kodak case reveals that the company did in fact foresee the rise of digital photography but failed to realise that online photo sharing was the new business and not just a way of expanding the dated film printing business.
Some business analysts were harsher, commenting that the company was just obsessed with its past and refused organisational change despite being given more than adequate warning signals.
Calculating the differences
Cases such as Kodak’s serve as a reminder for higher management and financial experts to take a step back from time to time and review market conditions and organisational direction.
In a report titled DNA of a CFO produced by Hays that included a survey of 145 CFOs across Asia, 58% of respondents believe strategic planning is the most important attribute of a CFO and the majority of finance leaders had an appetite for continuous professional development, with 73% having an MBA qualification and 33% having a relevant master’s degree.
The reason for this pursuit is simple. Postgraduate finance programmes and professional courses allow individuals to be more attuned to organisation-wide concerns and have a better understanding of the importance of aligning finance with business strategy and overall leadership.
It is the aim of many finance programmes to expose students to the required techniques and methodologies in finance, provide in-depth understanding of current financing trends, encourage students to develop long-term vision and strategy frameworks, assess and enhance personal leadership styles as well as drive innovation and lead cultural change.
According to Dr Zahir Osman, senior lecturer and programme director for the Master of Business Administration at Open University Malaysia, “Successful business is all about applying the right strategies.
“Today’s business environment is very dynamic and finance individuals have to make sure their skills and knowledge are up to date as making the wrong decisions can cause a lot of problems.”
Finance professionals may be talented in a number of skills, but they are also likely to lack the best foundations in other areas of a business. Dr Zahir likens this predicament to going to war without the right weapons.
The curriculum of a postgraduate or master’s degree will open their eyes to the broader picture of economics and management.
New wave of concern
Last year, the popularity of cryptocurrency rose significantly at a global level, pushing its value per coin to roughly US$20,000 (RM77,760). The amount of trade between users were staggering, encouraging businesses to accept cryptocurrency as a form of payment.
While it may be obvious for companies with online presence such as Microsoft, Dell, Bloomberg.com and Expedia.com to get in on the act, traditional brick-and-mortar stores in Northern America such as KFC Canada and Subway in the United States also started accepting cryptocurrency.
The trend has even reached Malaysian shores. As recently as December last year, The Star reported a curry mee and fish head noodle stall in Bandar Puchong Utama accepting Bitcoin and Ethereum, the two most popular cryptocurrencies.
Amidst the global fanfare, financial professionals will surely be asking themselves if the trend will affect their company.
If the company utilises electronic payments through networks such as
Visa and Mastercard, should the company start accepting cryptocurrency? What are the technological and resource costs in implementing such a move? Is this a bubble that will eventually incur financial losses?
Dr Zahir believes entrepreneurs and anyone working in the profession of finance will undoubtedly prefer proven strategies when making day-to-day decisions and acknowledges the risks and uncertainty surrounding cryptocurrency.
However, he admits, “At the same time, one must also be brave enough to do something new. You would never know that what you choose to do will be better than what is currently being done until you try it.”
Be it cryptocurrency or any financial challenge, he maintains that, given the information at hand and with thorough evaluation of business factors, it is important for all finance professionals to challenge themselves from time to time and try something new.
“If people rely only on proven strategies, they will always be thinking inside the box, would not be innovative enough and would not be able to think creatively. It is all about attitude.
“This does not mean taking high risks but be prepared for change. The financial environment has become very diverse due to the advancements in technology, so I encourage people to update their knowledge and never stop learning.”
Staying focused
Finance professionals should never rely on their past but base their decisions on ever-changing external factors for future success. This is the same ethos that enabled business magnate and investor Warren Buffett to become the world’s second richest man.
Among his most famous quotes are “Predicting rain doesn’t count. Building arks does” and “The investor of today does not profit from yesterday’s growth.”
Buffett’s sentiments were mirrored in the Hays survey among Asia’s CFOs, which reported that more than half of those surveyed believed the up-and-coming generation of finance professionals need to be commercially aware in addition to developing people skills and getting involved with operations rather than just numbers.
These skills, however, must be honed and what better way to achieve this than to receive exposure in the form of postgraduate or professional finance programmes that require students to examine case studies from around the world.
The theoretical and practical knowledge gained will prove beneficial in making better informed decisions and formulating strategies to navigate financial challenges.