Opinion - CNBC Global CFO Council

Op-ed: Only about 10% of companies emerge from a crisis stronger. We know one financial reason why

Todd Ford, CFO, Coupa
Key Points
  • The Covid-19 pandemic economic shock will lead many corporations to go under.
  • Decisions made by chief financial officers can be the difference between business success and failure. 
  • CFOs who cut costs without sacrificing long-term investments drove post-crash sales and profit growth, according to Harvard Business Review data.
Tom Cruise as Cole Trickle at the racetrack ready to drive in a scene from the film 'Days of Thunder', 1990. (Photo by Paramount Pictures/Getty Images)
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In a momentous scene in the movie "Days of Thunder," talented hot-shot NASCAR driver Cole Trickle, played by Tom Cruise, is approaching a turn. A fiery plume from a crash ahead has brought visibility down to zero and spinning and burning stock cars are sliding down from the top of the track. Without hesitation, Trickle puts his foot down on the accelerator, goes high, and powers through the billowing smoke, emerging safely and winning the Daytona 500.   

Today's CFOs are facing a similar cloud of uncertainty in a high-stakes race. The Covid-19 pandemic has wreaked havoc on the world economy – businesses and industries have come to a screeching halt, unemployment has reached unprecedented levels, and the National Bureau of Economic Research declared that we officially entered a recession.

Amid this chaos, CFOs find themselves in the spotlight, where the decisions they make today will be the difference between survival and failure. Those who embrace this opportunity to lead will be better positioned to emerge stronger and better than they were before. Here's how.

The post-crisis success story

In 2009, as the dust was beginning to settle on the global financial crisis, the Harvard Business Review mounted a year-long project to analyze corporate performance during the prior three global recessions.

Almost one-fifth of the companies in the study didn't make it. Of the survivors, 80% barely limped through, paying the price for suboptimal choices between fostering growth and rationalizing costs. What had been good enough in benign times was far from it when the crunch came.

Then there was another subset of companies who thrived post-crisis. They were a select few – just under 10% – and they did better on key financial parameters than they had before, as well as outperforming rivals in their industry by at least 10% in both sales and profits growth.

These companies were the ones whose CFO figured out the balancing act between surviving an immediate shock and investing in the future. They reduced costs selectively with a focus on operational efficiency, while at the same time using their balance sheet as a weapon to boost vital spend on marketing, R&D, and new assets.

In a crisis environment, the best CFOs are operational. They understand the business well enough to know exactly where to invest one incremental dollar for optimal performance, as well as the opportunity cost of not putting it someplace else, and combine that with peer benchmarking and market information to act quickly and with confidence.

You can't control what you can't see. In times of crisis, a CFO must have visibility across all aspects of their spend to know precisely where and how every dollar is spent.

As the situation before us continues to evolve, now is the time for CFOs to shift their focus to efforts that support building long-term resilience, while addressing needed changes to help them navigate in the short term. However, you can't control what you can't see.

In times of crisis, a CFO must have visibility across all aspects of their spend to know precisely where and how every dollar is spent. They also need to be able to react quickly and confidently on data from their suppliers, and even their suppliers' suppliers, to mitigate third-party risks across the supply chain. If one supplier is at risk, a CFO should look to offer early payment to improve their liquidity, or quickly source a new supplier for redundancy if a critical supplier fails.

Best-in-class CFOs are using big data and modern technology to confidently identify the right financial and operational levers to pull so they can chart a course forward, with the agility to avoid risks and the assertiveness to take advantage of opportunities.

How the best CFOs lead 

Trickle had talent, but what enabled him to make quick decisions was the information relayed to him by crew members about the vehicle's operation and what lay ahead on the track. For well-run organizations, the same applies. A strong CFO doesn't drive blind; they rely on their team, from the chief procurement officer to the financial controller or treasurer, to get the data they need to execute on strategy.

This can't be achieved without a fully empowered team. This means giving them more control over day-to-day finance operations, freeing up their time by replacing repetitive tasks with technology, and fostering an open and collaborative culture to build next-generation practices. When the going gets tough, a CFO must lead with emotional and intellectual agility to pull their organization and teams out of their natural fight or flight responses and enable them to unlock their capacity to deliver better results.

There is no one single approach to great leadership from a CFO, but their ability to unite the organization and focus on the future amid extraordinary obstacles will serve to strengthen the foundation they've built.

Covid-19 has completely changed the financial and business landscape. This year is going to call for significantly more judgment and effort to navigate the multitude of uncertainties about the future, and there is no doubt that the transition to a "new normal" will pose significant challenges.

CFOs, by their nature, are conservative, but those with strength, conviction, and data to confidently pick a lane and accelerate through will not only be able to lead their company out of danger, but beat the competition. In today's uncertain times, holding back isn't an option.

By Todd Ford, CFO, Coupa

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