As bizarre as it may sound, CFOs must prepare their organisations to live in a world dominated by powerful forces of half-dead, half-alive zombies. Banks, governments, consumers and companies are all entities that appear to be recovering, but are actually only half-alive.
In this “zombie economy”, banks are too weak to support lending, government finances are too stretched to support expansionary policies, consumer wealth is too depleted to allow them to consume and companies are saddled with debt they cannot service.
Moreover, CFOs have at least another two years to get through before they can start thinking about business as usual – and even then it will not be the same business as usual. CFOs must therefore act now to secure the stability and success of their organisation, and prepare for the twin dangers of illiquidity and irrelevance.
Illiquidity – despite highly profitable current trading, banks nurse huge losses on their balance sheets and cannot provide the support that businesses need for growth – or even for survival. In this environment, capital ceases to be a commodity and becomes a powerful competitive weapon.
Irrelevance – businesses whose products and services are aligned to the changed needs of consumers and business customers will thrive; those still focused on last year’s customers will struggle badly. The CFO must ensure their organisation has the financial freedom to be responsive to the changing world.
But how can CFOs help position their organisation to thrive in the zombie economy?
Secure liquidity. In the zombie economy, cash is king. The top priority for any organisation has to be to save money and improve cash flow. The CFO must ensure cash awareness and good practice are in place at the core of the business.
Manage sourcing. The CFO should be driving the sourcing strategy which defines how corporate services are structured so as to optimise in-house shared service versus outsourced options. This will ensure the business strategy is delivered with the maximum returns at an acceptable risk.
Audit the portfolio. The CFO must identify any baggage within their organisation and stop pouring capital into these parts of the business. Even in good times, it is inadvisable to allow good parts of a business to cross-subsidise poor ones. Managers must fix the baggage or sell it. This will allow them to exploit the opportunities which will emerge from the upturn.
Focus on information management. While the world moves at zombie pace, risk will move faster. Given the volatility and uncertainty of the economic environment, effective business intelligence is more important than ever and financial leaders need to put in place the requisite analysis.
The zombies will have a profound effect on the corporate landscape of every sector. Leaders should return to the basics of good business by focusing on cost reduction, analysing the business portfolios and fixing or disposing of any poor performing parts of the business.
Acting now will free capital for investment in value-adding customer propositions as in the zombie environment, capital ceases to be a commodity and becomes a powerful competitive weapon.
Simon Tennant is Head of Shared Services Consulting, PA Consulting Group .