How Top Execs Pivot When Facing Uncertainty
Newton, Mass. — A panel of top CFOs at the MIT Sloan CFO Summit on Thursday scoffed at formal annual performance reviews and numbers-heavy strategic projections, instead urging companies to adopt an environment based on constant communication and above all, flexibility.
Planning for the future dominated a large part of the talk. In the midst of ever-present economic change, coupled with gridlock at the federal government level, businesses must focus on what is in their power to control, as well as maintain contingency plans to pivot in the face of the unexpected.
The morning panel, with CFOs from Hasbro, DuPont, NextEra Energy and Sysco Corp. , held a wide-ranging discussion focused on the summit's central theme: "Achieving Sustained Excellence." Each company had a story to share about overcoming obstacles in their markets and companies.
Faced with a slow-growing game-and-toy market in the U.S. and Europe, Hasbro has moved into new markets like China, Russia and Brazil.
NextEra Energy, an electric company that must be nimble after natural disasters like hurricanes, has adopted SmartGrid technology to improve service response.
Sysco, a food company, has deliberately slowed growth for years in order to revamp its structure and lower costs.
Moderator Carol Massar, anchor of Bloomberg Television and Radio, noted in her opening that the MIT Sloan summit has spent the past years dealing almost entirely with damage control from the fiscal crisis, making this "sustainable" theme feel like a new chapter for the annual event.
But the fiscal crisis nonetheless informed the CFOs' responses. Each acknowledged that external forces — including the state of the current U.S. tax and regulatory policies — are, to a large degree, out of companies' hands.
Businesses are starving for direction, said Nicholas Panandakis of DuPont. Part of that direction comes from identifying factors within your control and focusing on those, rather than, in his words "the knobs you can't turn." Companies can isolate those things they can control and derive value from, and be prepared for things they can't.
Put another way, "You have to build an organization that is comfortable being schizophrenic," said NextEra's Moray Dewhurst. Companies like his must simultaneously hold multiple possible views of the way the world will unfold. They must pick out the "more likely than not" scenarios and prepare for them.
His company, for example, has accepted that environmental regulations will tighten. The details of this future are unclear, but NextEra is confident it's going to happen, and can prepare for it now.
The fiscal crisis, if nothing else, taught companies to expect things that were previously unthinkable, said Chris Kreidler, CFO of Sysco. Up until the crisis, everybody had great confidence in revolving lines of credit from banks — then the crash happened, and suddenly banks were declining funds.
So a new tradition at Sysco: "Black Swan meetings," where leadership meets to discuss the unthinkable, and how it will respond. Kreidler joked that merely by talking about something, it is no longer technically a "black swan," but the meetings effectively ward off the kind of complacency that had settled in before 2007.
The CFOs also repeatedly urged strong communication across all departments. Hasbro's Deborah Thomas criticized the concept of the once-annual, formal review. Imagine, she said, if Head Coach Bill Belichick only gave feedback to the Patriots once a year — clearly, it doesn't work. Companies must instead cultivate a culture of constant discussion and feedback, or be faced with departments that don't communicate, and therefore don't work together effectively.
In addition, the CFOs urged companies to stop wasting time by filling their strategic plans with exact numbers for one- or three-year projections.
"I have a healthy lack of respect for formal strategic planning processes," Dewhurst said, and Kreidler added that, if done wrong, strategic planning can be a "wasted exercise, especially when it's numbers-driven."
The plan should be about examining macro trends and coming up with guidelines for where the company intends to be, he told the audience. If it evolves into a set of numbers, that's fine, he said, but leaning entirely on a set of made-up numbers isn't likely to get you anywhere – especially when no one knows what the future will bring.