Posts Tagged ‘corporate finance’

Developing your financial management talent

by Brian Superczynski on October 11, 2010

Over the course of my career I’ve read numerous books and have attended seminars and classes on developing talent and leadership skills.  These classes have ranged from developing one’s own personal “brand”, to conducting performance reviews and even how to become a “thought leader.”  I’m sure during the course of your career you’ve also had similar experiences.

Now from what I’ve gathered from all of this training is that each of us has unique skills based upon our backgrounds and chosen professions.  In a light-hearted tone I like to refer to these unique skills as special needs.  I’ve also learned that if you don’t think you have special needs, you do – it’s just that you don’t know it yet.  In looking back at my experiences as an IT analyst, leader and mentor to other analysts, there is definitely a unique set of skills that facilitates adding value to financial support within IT organizations.

Finding an individual to perform routine financial tasks and create nice-looking Excel spreadsheets is easy.  Identifying an individual who can provide value-added input to your IT management team is a different ball game.   There are not many universities and even companies who train individuals how to apply their financial skills to IT operational financial management.  Therefore it is incumbent upon IT organizations not only to identify quality financial management talent but to provide training on IT-focused financial management strategy and practices.

I’ve always believed that IT financial management is a smart and rewarding choice for young finance professionals beginning their careers.  For starters, they are usually assigned to executive IT teams to provide financial and administrative support.  As such, they quickly gain invaluable experiences on leadership dynamics and how decisions are made.  I recall early in my career being the lead financial analyst on an executive IT leadership team at a Fortune 50 organization.  We hired a new executive who had just retired with the rank of colonel from the U.S. Marines.  The executive vice president called me into his office and introduced me to this new leader and proceeded to tell him that I would review his budget, his key initiatives, and also provide him with insight into his new team.  Now I was a full 25 years younger than this newly-retired colonel and he had this perplexed look on his face while I was reviewing his budget and organization.  After a while, the colonel looked up and said, “I get it – you’re the bosses S-L-J-O” (pronounced: Slow-Joe).  Puzzled, I inquired what a SLJO was.   I quickly learned that my corresponding position in the armed forces was fondly referred to as the “Stinky Little Job Officer”.  Actually, another word was used instead of “Stinky” but I’ll leave that to your imagination.   Now my point is that at a relatively young stage of my career I was given the invaluable opportunity to participate and be a key member of an IT leadership team, albeit in a “junior” but important and strategic capacity.  Not only did it allow me to utilize my financial skill sets, but it also allowed me to adapt those skills in a new capacity while learning what I found to be the interesting world of running a large Information Technology organization.  I found being accepted as a full-fledged member of the IT organization that I supported the single best training that I could have received early in my career.

On the flip side of my own personal experience, I’ve seen many IT organizations look to their financial support as overhead that is required only to provide corporate financial planning, with little more than budgets, monthly accruals, and variance reports.  In these instances, the relationship is typically somewhat contentious and the individual providing financial support is often unable to articulate the IT drivers in their analysis and they become little more than accountants and end up moving to another job fairly quickly.

By now you’re probably wondering if you need to develop an entirely separate training program for the group or individual providing your IT organization with financial support.  Might be surprising, but the answer is no.  As part of your team, they should be required to participate in your IT training programs.  Now, I’m not talking about your financial analyst becoming certified as a Cisco CCIE or a Microsoft Windows administrator.  I’m referring to having your financial support attend and participate in IT service delivery and project management programs.  Two that come to mind – which I strongly recommend – are

Of course, there are other programs such as Six Sigma that are also relevant and would be a good choice if your organization is adopting these or similar management methodologies.  All of these offerings and others are relevant to financial professionals and teach invaluable skills on translating IT terminology into financial and business relevant terms.

In addition, don’t overlook your company specific certification or training programs.  For example, at one organization all employees and contractors are required to attend a half day class before conducting any type of work in the datacenter.  The purpose of the class is to educate the individual(s) on why the datacenter is mission critical to delivering services and providing an appreciation for all the processes in place to ensure a high availability and error-free environment.  It was amazing how the one half day of training gave non-IT professionals an appreciation for the IT organization as a whole.  However, as a partner in a firm called Datacenter Trust, I must clarify that I don’t condone people frequently walking through your datacenter for training and tours.  At the same time, it’s always a kick seeing those datacenter engineers who don’t get out much impressing people with what they manage.  You know who you are…

These may appear to be obvious suggestions on developing your IT financial management talent, but more times than not I’ve seen the finance support organization recognized as a separate unique function.  The key word to remember regarding developing an effective partnership with your financial resource support is ‘inclusion’.   When developing your meeting agenda’s, identify a regular time to review the financial results compared to budget and forecast and any business cases or ad-hoc projects.  As appropriate, your financial support should attend as much of these meetings as possible to gain an understanding of the operational aspects of the organization.  Finally, elevate your IT financial support even further from the effective resource – or “SLJO” stage to a true technology and financial knowledge partner by having them actively participate in your IT-specific training programs.

The Tale of two budgets

by Brian Superczynski on August 30, 2010

It was the best of times, it was the worst of times. It was the age of ever-cooler technology. It was the age of ever-increasing spending on IT infrastructure.  It was that time of the year – the season to present our annual IT budget, with company leadership insisting on it being received, for good or evil.

After completing my fair share of budgets over the past several years, I admit there have been more than a handful of times where the budgeting process was comparable to a dark Charles Dickens novel.  The budget would be “packaged” and presented for executive approval as expected, but only after months of planning, reviewing, justifying, and negotiating savings opportunities.

How the IT budget is presented is the key to bypassing those “worst of times” and being able to confidently steer your organization to the best of times.  This may sound relatively straightforward but let’s face it – IT and finance organizations are not known for their marketing or communication skills; it’s just not in the DNA of either group.  So then, how do you take your technology budget, containing a multitude of services, from network to datacenter operations and from it, develop a sound IT operations plan and budget which the business understands?

It’s the tale of two budgets……

The solution is providing clarity and transparency, translating the ongoing costs of previously approved investments and providing options.  Focusing on these three areas will result in the view that your IT organization is a high-performing business partner and not just another allocation to the business for which there is little or no control.

First, focus on explaining your budget in a manner which does not require an IT decoder ring for the non-technical folks.  One of the qualities that I consistently see in high-performing IT executives is the ability to translate technology and corresponding costs into the business drivers of your organization.  Keep your presentation in tune with the corporate strategy and growth drivers. The easiest way to break your costs down and translate into business drivers is to identify the product portfolios you support.  For example, if you’re a pharmacy operator, identify how much of your IT infrastructure is required to support  traditional brick and mortar pharmacy services versus online pharmacy services.  Furthermore, if on-line pharmacy services is experiencing rapid growth and has become the cash cow be sure to explain the impact on the information technology cost structure. Next, translate how online services, supported by IT have improved the customer experience (and possibly lowered transaction costs).  The success of your presentation will be measured not just by gaining budget approval, but on your ability to provide transparency into your cost drivers.  If you’re really on top of your game, you can even show how segments of your IT shop (like online pharmacy services) are actually profit centers.

Second, you can further enhance your reputation as a trusted business partner by identifying the ongoing impact of approved investments that reside in your budget.  These investments are likely projects that were approved and implemented in prior years and now are part of the infrastructure, which require ongoing support and maintenance.  Having a previously-established governance process is necessary in order for this conversation to be effective in your presentation.  I once worked with a CIO who consistently reminded his organization there was no such activity that was referred to as an “IT Project.”  All projects within the IT organization either supported, enhanced, or created new services which were understood by the business partner – and the investment had previously been approved jointly with the business.  The governance committee responsible for establishing these processes should be made up of members from the executive committee who will ultimately approve your budget, so that they can be familiar, knowledgeable, and even involved in the investment as they are made.  Likewise, many of these investments are predicated upon creating savings in your infrastructure or elsewhere in the organization.  Therefore, be sure to not only identify the impact of ongoing costs but also identify where the savings or enhanced revenue have been realized in the organization.

Finally, identify the investment opportunities in your infrastructure and present them as ‘levers’ that the executive committee can ‘pull’ when they look for reduction opportunities in your budget.  These levers can range from outsourcing portions of your infrastructure, to investing in new technologies that will result in performance improvements or efficiency gains in the future.  In fact, outsourcing is typically an easy sell when it addresses an area of your organization that is not a core system or competency.  As an example, many IT organizations have become responsible for managing the telecommunications infrastructure and related invoices for the entire organization.  This can be a labor-intensive process which often requires specialized knowledge of telecom billing.  Many outsource companies today can provide services to automate the paying and auditing of your telecom invoices – and even make the carriers’ job of servicing your account much easier.  This is a prime example of a lever you want to present to an oversight or executive committee because although it makes fiscal sense, you also want to obtain mutual agreement that it will also result in tough decisions with respect to staff reductions. Presenting options such as this will prove that your IT shop is not only looking to be a partner to the business, but also stepping up as a leader in reducing cost and improving services and performance.

In talking with a number of colleges, this is the time of year many IT organizations begin to work through their annual IT budgets.  Presenting transparency, impact of prior investment through governance, and providing cost-saving options are the keys to providing sound fiscal leadership and to developing a reputation as a trusted partner to the business.  As mentioned at the beginning of the article, the only potential “evil” side effect of following this outline – now that you are an expert – is that you may get cajoled into assisting the marketing department with its annual budget planning.    As sometimes the case, no good deed goes unpunished.

Integration: Keys to the successful merger of companies

by Matthew Carmen on August 2, 2010

There is really only one reason for the merger of corporate entities: the creation of more shareholder value (whomever the shareholders are) from the two, than were there separately.  The creation of more profit is done through doing business more efficiently and effectively, which takes on many forms, depending on the where in the organization one resides.

When a corporate combination of any kind (merger, purchase of business unit, hostile takeover, etc) is announced, it is usually the first time that the vast majority of employees, on both sides of the transaction, have heard this is happening.  This announcement will trigger many acts.  Executive management, the “C level” and their support will be working on the new strategy of the combined entity, the purchased entities employees will be worrying about their futures, etc.  The real work is realized at the operational levels of both entities.

In most cases, the purchasing company is restricted from speaking with the company being acquired until the purchase is finalized.  The high level executives on each side may have spoken about strategic issues of running the combined entity, but the nuts and bolts of daily operations typically have not been fleshed out.  Once final approval for “the deal” has happened, the clock starts regarding  the time it will take to integrate the two organizations into one cohesive unit.  The faster this occurs, the quicker the goals of the merger, greater shareholder value, can be achieved.  According to CNBC, nine out of ten mergers do not fully meet the goals of their acquisition. This is largely due to a failure to integrate companies properly.

This failure to integrate can be seen in the current Gulf of Mexico oil spill debacle.  British Petroleum (BP) never integrated its purchases in the United States, Atlantic Richfield Company (ARCO) and American Oil Company (Amoco).  These companies don’t even share branding with their parent company, much less financial and IT systems.  An integrated entity may have helped BP to be more proactive in its maintenance of gulf oil platforms and wells, possibly stopping or at least lessening the catastrophe that occurred with Deep Water Horizon.

During the period of time between when the corporate combination is announced and when it is approved by shareholders, government entities, etc. a lot takes place behind the scenes, often without discussion between the entities.  The main task that takes place in successful integrations is proper preparation within operational areas.  This preparation includes putting together the processes and procedures that will need to take place to reach the corporate goals.  In companies that are in a merger mode, meaning they are growing through regular acquisitions, many of these processes and procedures can be used over and over again, and usually are.  For the company that does not participate in acquisition often, creating these processes and procedures can seem like a daunting task.  There are many consulting companies, from the Accenture’s and Deloitte’s of the world down to small specialty firms (such as my own – Datacenter Trust) who concentrate on the portions of the business where they have specific expertise and can help complete or even manage the integration process.

Once the acquisition has been approved, the integration process begins.  I participated in multiple integrations while employed at one of the largest entertainment companies in the world, where I was the lead financial representative to the Program Management Office (PMO).  One example of an operational process that needed to be looked at during each acquisition was the issue of entertainer royalties, the way in which actors, musicians, etc. get paid on their current and past work.  It was the job of that department to look at the current royalty application being used and the royalty application of the acquired entity and choose which application is better, if neither was best of breed, outside solutions may have been looked at.  “Better” is a very subjective idea, one which in this case was left up to the experts in each department that needed to make a choice, regardless of application.  Anyhow, once a choice was made, a plan was put together and included cost analysis, equipment needs, software licensing needs, etc.  Once all of the application consolidation plans, hundreds or even thousands, were finished, they were turned over to the PMO.

The job of the PMO was to look for efficiencies within all the plans.  These efficiencies were all tied to being able to have more purchasing power, economies of scale.  Economies of scale says that one company with 100,000 users will get better pricing then two companies with 50,000 users each.  This is due to the fact that it is harder for the company with 100,000 users to make a future change in usage. We were able to negotiate with vendors based on the size of the new entity, gaining pricing power in the areas of hardware (PC’s, servers, etc), software (applications and packages) and services (consulting, facilities, electricity, etc).   In the finance department, we were able to leverage the major vendors in the space, for our budget & planning system and accounting system, to get pricing that was over 35% better than it had been in the past.  We also got all of our users on the same systems, making reporting easier than it had been before.  The integration, in total, saved the combined entity over $400M in annual spend.  The largest areas of savings were software maintenance and facilities.

Datacenter consolidation is an area that must be looked at closely for a successful integration of IT operations.  Back to my example above, the combined entertainment giant decided that six global datacenters was the appropriate number.  The number could have been lower, but there were many global political issues, etc.  Formerly, the two companies had a total of 18 datacenters.  In two geographical instances, the two companies had data centers right down the street from one another.  By going to six global datacenters, the new company was able to save a great portion of the previously mentioned $400M.  Disaster recover became an in-house activity, electricity usage was cut by over 33% and the location of applications became a mute point, where it had been a political battle field before.

Conclusion

Integration of operational areas between merging entities is crucial to meeting the overall goal of growing shareholder value.  When done properly, the measurable goals of an acquisition can be easily met.  When convoluted, the acquisition looks like a bad idea two, five, and ten years out.  The last thing any management team wants to do is fail in an acquisition.  Loss of employment, legal proceedings, and possible acquisition by another entity are sure to follow, and no one wants to go through that.  Everyone associated with a company: executives, employees and shareholders alike, benefit from a well-planned and managed integration.

More bang for your IT buck: Three keys to success

by Brian Superczynski on March 15, 2010

Many companies do not have the luxury of providing dedicated financial support to their Information Technology (IT) organizations, which often results in a struggle to understand IT cost drivers and savings opportunities.  This struggle has become more evident as companies increasingly rely upon effective IT to drive operational efficiencies while simultaneously expecting IT units to reduce operating costs. This paradigm often results in the CIO seeking a liaison between IT and corporate finance in order to help provide transparency of technology costs as well as to identify the value proposition of all IT services. Identifying meaningful savings and efficiencies in your IT environment begins with a partnership between the technology and financial support units.  Preparing for these conversations requires an understanding of how to build a successful partnership between IT and corporate finance – the foundation for which begins with three related key practices:

Applying traditional financial management practices with the IT disciplines of vendor and asset management.

FINANCIAL MANAGEMENT:

The key to world-class IT financial management is coupling financial processes to your technology infrastructure and the organization’s strategic technology roadmaps.  Effective financial management ensures the IT infrastructure is obtained at the most cost-effective price, while providing the organization with a deep understanding of its IT services costs.  In many instances however, the most cost-effective price may not necessarily mean the lowest price; depending upon availability requirements and other demands placed on technology.   Financial transparency must therefore exist in order for the business to understand the tradeoffs between price and performance.

VENDOR MANAGEMENT

This price and performance tradeoff was painfully evident following one organization’s switch to a well-known personal computer supplier, which was initially calculated to save the organization millions of dollars.  Not surprisingly, the finance organization was quick to identify how the new agreement would reduce expenses in the following year’s budget.  However, those savings quickly evaporated after the supplier experienced a 20% failure rate on over 100,000 devices, which had been in service for less than a year.  Obviously, managing your suppliers not only includes obtaining the best price but also monitoring the quality of the product or service being provided.  This is why continually monitoring your relationships and agreements with suppliers (and including your finance organization in this process) is often your first and best opportunity to identify operational inefficiencies and IT cost savings.  The end result will not only mean achieving better price performance from your technology assets, but also will improve the reputation of your IT organization to provide a quality product at an explainable and predictable cost.

ASSET MANAGEMENT:

Keeping your technology assets current also requires active management of these assets:   An effective asset strategy not only tracks the asset but takes into account the lifecycle of the product from procurement to eventual disposition.  For example, leasing is a common asset and treasury strategy found in IT because it frees up cash flow associated with large capital purchases.  I’ve witnessed on numerous occasions leases being subsequently bought out because the technology owner was not made aware of the lease and was not prepared to replace the technology at end of term.  These pitfalls can be easily avoided by linking asset strategies with technology roadmaps and the organization’s budgeting process.

These three practices may appear straightforward, but in order to be successful they require the constant collaboration between your finance and technology organizations.  The application of financial, vendor, and asset management methodologies will keep your IT organization on track to realizing operating efficiencies while also optimizing operating costs.

Stay tuned: Our next few posts, we (my fellow Datacenter Trust teammates and I) will delve deeper into each of these key three areas as well as other topics on IT finance.