Why a focus on outcomes will help you navigate the COVID crisis
From a financial and practical perspective, the crisis launched by COVID-19 is very different from the one we experienced in 2008. In September of that year, we witnessed the implosion of liquidity in the banking sector and a subsequent time lag before the economic impact filtered down onto main street or the consumer-based economy.
The 2020 Global Pandemic was swift and sudden - we felt the sharp impact in our personal and professional lives. We’ve had to find new ways to operate, and to prepare for a myriad of possible outcomes.
Let’s form a committee to decide what we need to do about this fire
As the CFO of a global software company, if this current crisis has highlighted anything to me, it’s the ability (or inability) of organizations to quickly adjust to new norms and perhaps how difficult we make it for ourselves to change tack when needed.
Our inability to flex in business can be likened to the “Fire Committee”. If the building was on fire, instead of trying to get out (or put out the fire) we’d form a Fire Committee. And by the time it had decided what to do, the building would have burned down.
But that’s not what we do. We’ve developed ways to quickly respond to emergencies -- namely a fire drill. We practice it so that when a fire does happen, we don’t need to form a committee, we react based on years of training.
The “fire drill” approach can only prepare us for things that are known and understood. What COVID-19 has shown is that our business needs to be inherently agile so we can respond with meaning and purpose to the unknown unknowns.
My operating philosophy: “sustain value, reinvest in recovery”
This phrasing resonates with me as it lets us build a model for what CFOs should be trying to preserve and sustain. “Sustain value” encourages us to focus on what matters. It reminds us to embrace our values and apply them to our response to the crisis. For Unit4, our response has been rooted in our own values -- “people first, everything else will follow”.
“Reinvest in recovery” guides us to think about those things we carry forward to ensure that we come out of this in a much stronger position. How we capitalize on the value created during the crisis through new approaches and attitudes to work as well as how that work gets done can make our organizations more efficient and ready to seize new market opportunities.
Shifting your focus to recurring revenue can help to foster financial resilience
Companies finding it easier to create and sustain value in today’s world are those that can rely on recurring predictable revenue.
A predictable recurring revenue flow has enabled Unit4 to weather the turmoil many businesses are facing. We’re fortunate to have a loyal installed base for whom we have provided mission critical services over many years. This has resulted in us having a recurring, highly visible cash inflow. Though we’ve experienced fluctuations in certain areas of the business, we’re actually trending ahead against many of the scenarios we modelled. This has resulted in our ability to delay drastic cost avoidance and reduction measures which may, in other circumstances, have been necessary to shield our profitability from any revenue shortfall. We continue to maintain a very proactive stance in monitoring the health of our sales pipeline and forecasts so we can be prepared in case further actions are required – a second fire drill.
The world is rapidly transitioning to a consumption or subscription-based economy where ‘everything as a service’ business models dominate the business landscape. Obviously, it’s not a panacea, but it will go a long way to creating durability and longevity.
How a company seeks investment will have to change to reflect differences in how investors measure value. Obviously, how much of a company’s revenue is recurring will be a key consideration for the foreseeable future. Regardless of which crisis we refer to, investors always look for evidence of success in the business itself during a downturn. We’ll be prepared to demonstrate it.
Hitting the reset button
Given the world in which we’re living, we can’t think only about how we sustain pre-crisis value; we need to maintain the value created during the crisis. Not only is this a necessary part of the forthcoming “recovery”, it’s an opportunity for us to identify and eliminate structural and behavioural weaknesses in our business.
For many organizations, value was realised in the form of new ways of working. This included how leaders and their teams fostered continuous communication and the ongoing evolution of culture. As a software company, remote work is not a foreign concept. However, doing it “overnight” and at unprecedented scale was new for us.
This shift to “remote work” has more than proved itself. It’s also surfaced one of the greatest weaknesses -- our excessive dependence on business travel. In the pre-COVIDIAN world, our organization was all about “planes, trains and automobiles”. If a meeting needed to be held, a plane or train ticket would soon follow. While in-person collaboration has its merits, we didn’t need a 5-star diet of it. To achieve great results, we don’t always need to be in the same physical location when digital collaboration enables us to work together -- in the same virtual place.
As a financial leader, I often think about whether the traditional office is a buoy or a boat anchor. My philosophy had been that good corporate cultures depended on being together in an office. One of the more remarkable evolutions I’ve seen during this lockdown is how the adoption of technology has replicated and, in some cases, gone beyond what we would do face-to face. We’ve hired and on-boarded new colleagues we’ve never physically met; we’ve won new business without going “onsite” and we’ve strengthened relationships with investors, customers and colleagues over video. Relationships are ultimately built on honest communication and trust -- digital engagement hasn’t interrupted our ability to create and maintain those bonds.
Through which door do I “return to work”
As part of our ‘return to work’ strategy, I was recently asked to assess which members of my team need to be in an office to work. No one was more surprised than me to find that the answer was zero.
Of course, some of us want to come back to an office feeling a need for a physical focal point. Moving forward, I believe my role will be built around ensuring that the organization has the resources it needs to execute against the changes we’ve made, and to flexibly achieve the outcomes in a world that looks very different from the pre-COVID landscape – and from the situation we find ourselves in today.