CFOs: MVPs for Infotech Teams
CFOs: MVPs for Infotech Teams
By Nick Wakeman
The role of chief financial officer is a critical one in the information technology industry. At medium to large IT companies, CFOs must deal with new technologies, short product life cycles, new markets and constant pricing pressures from the competition.
Mere number crunching just doesn't cut it, industry experts say.
Take CFOs such as Thomas Faulders at BDM International, McLean, Va., and Thomas Mere-dith at Dell Computer Corp., Austin, Texas. They look at the processes and operations of their companies, ask the tough questions and then follow through on results - while keeping a close eye on the company's strategic goals and profitability.
CFOs in the information technology industry must anticipate more factors than other industries, including swift product life cycles and constantly changing technologies, said Eric Blachno, an analyst with Bear Stearns & Co., New York.
Faulders, Meredith and others, such as Patrick FitzPatrick at DynCorp, Reston, Va., and Jack Hughes at BTG, Vienna, Va., have been singled out by industry experts as CFOs who have gotten their arms around the demands of the job.
Meredith likened the job of CFO to a goalkeeper on a soccer team. Not only is it the last line of defense for shareholder value, but "you can also see the entire field of play," he said. "There is an opportunity with your teammates to direct or influence play."
"I view the role as a kind of senior consigliere to the CEO," said DynCorp's FitzPatrick. "The CFO should not simply be a bean counter."
The CEO, CFO, company chairman and other senior executives must share a vision for the company, Meredith said. "Without the buy-in from the ultimate leadership of a company, you aren't going to get the rest of the organization to buy in either," he said.
"You must be an evangelist to the organization," Meredith said.
Each of these CFOs view themselves as just one member of a team that leads a company. However, they agreed that a strong relationship between a CFO and the chief executive is a must.
The potential for tension between the CFO and CEO is often great. "CFOs have to understand the business and not be afraid to tell the emperor he has no clothes," said David Wu, an analyst with the Chicago Corp., New York.
BDM's Thomas Faulders said the CFO can be an agent of change for a company.
"Some CEOs are more open to that than others," Faulders said. "It can be contentious but it's something that sometimes has to be done."
Often the credibility of a company rests with the strength of its CFO, said Douglas Schmidt, senior vice president of Ferris Baker Watts, Baltimore. CFOs rise to greater prominence when companies go public and when they pursue mergers and acquisitions, he said.
"The public markets will tolerate a certain amount of marketing and salesmanship in the CEO. But if the CEO is not backed by a well-grounded, fundamentally strong CFO, the public markets will quickly loose faith in the company," Schmidt said.
"Investors will believe the story of the CEO, but they will depend on the CFO to deliver the story," he said.
And CFOs are often a catalyst for change in a company.
Faulders joined BDM less than two years ago following stints at Comsat and MCI. At BDM, Faulders has led a major restructuring effort in which the $1 billion systems integrator eliminated subsidiaries in favor of business units.
The idea for the reorganization started with a vice presidents conference in the spring of 1996. The vice presidents were asked fundamental questions about the company's organization and use of resources, Faulders said.
"We got very rich details," he said. Then, he developed a restructuring plan that took effect Jan. 1.
"A CFO is a unique position," Faulders said. "It can be a wonderful agent of change if that's what the company needs, and it is a position that can implement control and discipline."
To keep abreast of where BTG is heading, Hughes meets weekly with an executive financial committee. It consists of the treasurer, vice president of finance, the controller and the financial directors of BTG's three business units.
"We try to keep tabs on critical items," he said. The company is growing rapidly with about $213 million in revenues for 1996 and $310 million in the first nine months of its fiscal year 1997.
When a problem arises, the committee devises solutions such as staffing changes and other ways of bringing senior management to bear on the problem. "It puts all the heads in one room," Hughes said. Monitoring all aspects of the business is critical, said FitzPatrick, who joined the $1 billion-a-year DynCorp in February. "I have to understand what is going on in the business so I can present a clear picture to the CEO," he said.
Line experience can also be a great asset to CFOs and add credibility in their dealings with the operations side of the business, industry experts said.
Dell's Thomas Meredith likened the job of CFO to a goalkeeper on a soccer team.
The CFO helps the operations side enhance the return on investment capital while the financial side works to drive down the cost of capital, FitzPatrick said. The difference between the company's cost of capital and the return on investment is the "value delta," he said. The wider that delta, the more value is created for the company, FitzPatrick said.
At Dell, Meredith strives for a mix of liquidity, profitability and growth at the $7.8 billion company. "Organizations that find themselves operating only for one of them will find themselves losing market share," he said.
An accomplishment at Dell of which Meredith is particularly proud is the company's 13-day inventory cycle. That quick cycle allows Dell to deliver new technologies more quickly, he said.
At the same time, the company looked at the entire process - development of products, sales, distribution and collections. "We were trying to figure out how to take time out," he said. "Compression of time is value." n