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Ideas Made to Matter
6 strategies for financial planning in the unknown
Budgeting, scenario planning, hiring, providing guidance — even in steady times, these responsibilities dominate the thinking of chief financial officers. During a global pandemic, it became even harder to manage amid the uncertainty, yet companies could and did persist.
“The last nine months have been unprecedented in the lives of companies,” said Ankur Agrawal, a partner with McKinsey and Company, during the MIT Sloan CFO Virtual Summit, held in late November.
“Whether it's a small business or a large corporation, whether it is a single company enterprise or a global corporation, the challenges have been many, and the CFOs have found themselves at the center of managing both for the short term and managing the crises day to day," Agrawal said.
Agrawal moderated a panel, “Financial Planning in the Unknown,” where he was joined by finance executives from InterContinental Hotels & Resorts, Everbridge, Zoetis, and Workday Inc. The senior officers shared what they learned about how to plan, hire, and invest during times of uncertainty and discussed new strategies they’ve adopted.
Here are six of their survival tips:
1. Focus on the short term when budgeting
With so much in flux, many companies found it tough to budget. That’s why “we really limited our initial forecast,” said Glenn David, executive vice president and CFO of Zoetis, which develops and manufactures medicines, vaccines, and diagnostic products for farm and companion animals.
“One of the key things that we tried to do is to simplify it as much as possible,” David said. “In the earlier phases, for the first submission, we would typically ask for a multiple-year plan, full profit and loss, top to bottom. What we realized was that the value of that information may not be as critical now, because there is so much uncertainty, so we really tried to simplify the process, knowing that also our colleagues were heavily burdened with many other areas that they were still trying to optimize for the current year.”
David said that trying to predict 2022 and 2023 was also “probably pretty unrealistic” in the middle of the pandemic. As a result, Zoetis focused on providing investors a range of outcomes just for 2021.
2. Offer guidance, no matter what
Providing earnings guidance was one of the most challenging parts of the pandemic for many companies. Some withdrew previously issued guidance, others revised their estimates downward. Panel participants, however, agreed that saying something was better than nothing, even if it was bad news.
“You've got to put something out there,” said Patrick Brickley, senior vice president and CFO of Everbridge, a software company whose applications help keep businesses running during emergencies and other critical events. “We've been unapologetically conservative in doing it, and fortunately continuing to outperform those expectations, but low expectations are better than no expectations was our calculus.”
InterContinental, meanwhile, decided to give guidance more frequently and added more details to help add transparency. Even in situations where executives couldn’t make predictions, they said as much.
“If you have nothing to say, say that,” said Judy Romano, InterContinental’s vice president and CFO of commercial & technology. “If you don't communicate, people will start making it up.”
At Zoetis, “a lot of our peers pulled their guidance completely because of the uncertainty,” David said. “It was my view that we understand our business hopefully better than anybody does externally, so we still had a responsibility to our investors to give a range of what the potential outcomes could be.”
3. Plan for the worst (even when things are going well)
It’s hard to think about all that could go wrong, especially when business is booming, but at Zoetis, David said, preparing in advance for the worst case scenario served the company well by having a plan in place.
“We've done a lot of scenario planning in the past, and business continuity planning, in the event that a certain facility or site might be shut due to a natural disaster or things of that nature, and it really served us well during the pandemic,” David said.
“We were able to quickly adapt to the virtual environment from a technology perspective, but also from a people perspective, and really keep our operations running pretty much at a 100 percent level,” David said.
4. Identify skills gaps — and hire or reskill as necessary
Hiring doesn’t necessarily need to stop in a pandemic. At InterContinental, for example, Romano recently hired a data scientist to help the company cull valuable insights from its data.
“In terms of resource prioritization, I have been focused on upskilling my team, but there is a recognition that you might not have all skill sets readily available to you, so I have been focusing on seeking out these skill sets,” Romano said. “Some [skills] that are predominant now these days are understanding big data, understanding data insights and storytelling.”
5. Invest where it makes sense in the short term
With so many consumers at home and afraid to go into stores for safety reasons, Zoetis increased its investment in direct-to-consumer advertising. The company realized that because many of its customers were spending a lot more time at home, they were more focused on their pets and noticing more about their health. So far, the company has recorded “a very positive return” on its investment.
The company also decided to launch a few critical products targeted to consumers, which helped offset the loss of in-person sales calls to veterinarians.
6. Experiment now — and keep what works going forward
If there was one silver lining of the pandemic it was this: When executives experimented and innovated during the pandemic, they sometimes came up with solutions good enough to keep around in the long term, even after business is (sort of) back to normal.
“I think it would be a shame to let some of the efficiencies that we've uncovered in our businesses not survive,” said Tom Peff, director of product marketing at Workday, a financial management and human capital management software vendor. “There have been some pretty dramatic experiments, I would say, that have gone on over the last nine months, in terms of just something like no travel budget. There are some things you miss being on site with a customer, but there's some things that are much more efficient.”
David agreed, saying virtual meetings will have relevance in a post-COVID-19 world.
“That doesn't take away from the value of the in-person meetings,” he said. “We'll still continue to do that, but it'll probably be more blended.”