Since the recession began, the chief financial officer has become an even more pivotal player in helping companies to successfully navigate the crises. While the United States appears to have pulled itself out of the recession, the market remains volatile and the CFO still has plenty to consider as 2010 heads to a close.
With the news that Defense Secretary Robert M. Gates is looking to trim DoD’s contracting budget, the contracting community needs to look for ways to increase efficiencies and cut costs, while maintaining solid growth.
So, what are some key ways to ensure the corporation stays on track through the end of the year?
One method is to change the thinking from how to spread overhead to the best way to provide a return on investment, according to Attain CFO Dan Smith.
“People talk about wrap rates, GSA schedules and cost structures, but at the end of the day, we shouldn’t be thinking about how to spread our overhead,” he said. “We should be thinking: ‘How do I make money on every deal we bid on and provide a return on investment?’”
Cost structure is another key focus, according to Noel Samuel, vice president finance for Dell Perot Systems Government Services.
“You want to make sure that your shared services team is as lean as it can be relative to the direct labor,” Samuel said. “You can make market margins a possibility as long as you make sure that ratio is in check.”
Focusing on building your organization is another way to bring in new talent. While the economy appears to be in recovery, the unemployment rate remains higher than in years of economic prosperity, meaning now is the time to bring in new blood to revitalize an organization.
“It’s a great time to retool your organization,” said Jim Reagan, senior vice president and CFO of Vangent. “There are some great people out there with a private sector or corporate background. This is an opportunity to bring onboard strong, experienced people who’ve been downsized out of organizations.”
Focusing on the current workforce is another way to not only reassure employees in the uncertain economic climate, but also to build company loyalty, which will provide dividends later in retention rates, which reduce the costs of hiring new employees.
“People have some uncertainty in their personal lives with the uncertain economy in this period,” said Tom Mutryn, CFO at CACI. “It’s important to recognize people and reward people. Basic human capital management 101 needs to be stressed.”
Some of the best ways to see what your employees need is to solicit their feedback directly, through surveys, etc.
SRA International, which has one of lowest voluntary attrition rates in the business, works to solicit feedback from employees.
“We think we do a good job listening to our employees,” said Rick Nadeau, CFO at SRA. “When we do annual performance reviews, we don’t just talk about the past; we spend a lot of time talking about the future.”
Similarly, HPTi has also increased retention rates, which significantly decreases the costs of hiring new employees.
“Increasing retention helps us in lots of ways,” HPTi CFO Bill Milligan said. “It improves our revenue generation, and obviously, we avoid the cost of replacing employees which is high in this industry.”
However, planning for possible employees changes is key to ensure smooth transitions, should the need arise.
“We also spend time thinking about succession planning in the event a key employee does decide to leave,” Nadeau said.
Ultimately, it comes down to asking, and answering, a key question each day, according to QinetiQ’s CFO Tom Weston.
“What am I doing to reward and recognize employees?” he said. “We ask ourselves that question every day … we do regular surveys of our workforce to make sure we’re attentive to their needs and demands.”
The other side of the coin is to focus more effectively on customers. In the economic climate, and the possibility of decreased defense spending, current clients will be particularly vital for winning repeat business.
“In this environment, pay close attention to your current clients,” Smith said. “If you focus on the people you know – and from the clients you have – you absolutely can attain greater growth.”
The current and prospective budget situations also necessitate providing the best value and solution to meet a customer’s needs.
“There’s even more heightened focus on competitive pricing and providing the best solution and the best value for our clients,” said Marilyn Crouther, CFO of U.S. Public Sector at HP Enterprise Services.
The focus on customers is not just external, either.
“Delivering important management reports accurately and on time or being sure that a project manager’s important vendor is paid timely and in accordance with the terms is also vitally important,” Weston said. “For the back-office team, those internal folks are our customer.”
Metrics are another important component, and ensuring the best metrics are used can significantly decrease costs and increase revenue generation. It will also provide employees with targets, which are in line with strategic goals, according
“Pick the right metrics that motivate people to do the right things,” he said. “It should be a fewer number of metrics that influence behavior that’s consistent with your overall strategic goals.”
However, revisiting metrics intermittently can also allow the company to take advantage of shifts in the market.
“In the federal market space, people tend to use a lot of the same metrics,” Smith said. “It’s not enough to create a machine based on policies and procedures; you always need to question authority and continually look at your business in an evolving way.”
Improving processes and looking across business units for best practices can be particularly crucial.
Metrics can also be used to target underperforming areas, allowing management to focus on the areas that might need attention, Nadeau said.
“Try to focus on the areas that need attention,” he said. “Plan where you think you are most likely to be, then, if you fall short, address why you’re falling short and take aggressive management actions to get yourself back on course.”
Over the past year, a number of acquisitions have taken place, with in companies bringing in new employees with a different set of processes and ways of conducting business. While it is easy for the acquiring company to tell the acquired employees to adapt, Weston said acquisitions provide a great opportunity to explore new ways to do things.
“Every time we do an acquisition, we try not to plop that big book down on somebody’s desk,” he said. “Instead, we say, ‘Let’s figure out what you guys do … maybe there’s something you do that’s better than what we’re doing.’ That blending of policies has worked out well for us.”
One of the best ways to deal with the current and future economic climate, however, is to expect changes to the current environment.
“The economy, the competition, the client and their ability to fund projects, as well as their ideas about what they need, are all constantly changing,” Crouther said. “Being able to anticipate change is essential.”
Ultimately, staying on top of the current market and being prepared to react to any changes is vital.
“CFOs need to more effectively assess the bid pipelines so they can more appropriately predict what future revenues will be, especially in a more competitive environment,” Reagan said. “Protests are more frequent, and as a result, contract awards are more commonly overturned. You need to help the business and adjust accordingly to these realities.”