Sales And The CFO Part Iv
Jan 24, 2011
In the prior three newsletters, we explored three of the four basic ways of the increasing your company sales. CFO’s aren’t the “Deal Killers” that Sales Executives seem to perceive them as. CFO’s ask the questions that need to be answered before the company is put at risk. The CFO can provide the CEO the detail they need to boost profits during a time of sales growth.
To reiterate, growing sales is simple really – not easy, just not complex. Besides buying a company and growing through acquisition, there are really only four ways to grow your company:
1. Sell more of the same stuff to the same people
2. Sell the same stuff to different people
3. Sell different stuff to the same people
4. Sell different stuff to different people
Each of these paths to growth is covered with potholes that can pull the axle off your company’s progress. In this Newsletter we will explore the fourth strategy – Sell Different Stuff to Different People.
Sell Different Stuff to Different People
It doesn’t come as any surprise that this is the least implemented and most difficult of the four strategies. It is rarely done as a separate strategy – it is usually coupled with Strategy III – Sell Different stuff to the Same People. In other words, companies and their owners rarely wake up in the morning with an idea to make or market something unrelated to anything that they have made before and to sell it to customers with which they currently have no relationship. Look it up, it just doesn’t happen. But companies will take new, unrelated products that their current customers have told them they would like and use that impetus to explore new markets and new customers.
Development versus Acquisition – Should the product line extension be created internally or acquired from a competitor? Product development is a risky endeavor. The closer the new product is to current offerings, as an adjacency, the lower the risk.
“Adjacency” is defined as being so near as to be touching. A Tool manufacturer acquiring stamping presses to test their tools can sell stamping as a new product offering. It isn’t tool manufacturing, but it is a natural adjacency. A tool manufacturer making extrusion dies moving on to stamping dies may not be as close of an adjacency. Buy company versus buy a product line? Cost of integration? If it doesn’t work, how do you pull the plug? Step ahead or behind competition? The best source of answers to the questions is in creating a strong and effective new product introduction process.
An effective new product introduction process is the result of properly managing product development activities which deliver the right products at the right time, with costs within budgget. By optimizing the process you can shorten the time from a product’s concept initiation to its release to manufacturing, which reduces the risk of uncertainty. The CFO can help to manage the amount and degree of product change and the lifecycle to minimize the financial impact of obsolescence on inventory.
A CFO’s job is to develop the infrastructure to capture the specific new product introduction process steps and help to identify time spent on non-value add activities. By incorporating best-practice project plan, document templates, and metrics, the CFO can focus on reducing the costs of activities that don’t directly drive the success of the project. As a necessary member of the team, the CFO helps the team to define, plan, track, and manage each project’s cost.
An effective new product introduction process provides project visibility to all team members eliminating the team’s questions about pending assignments. This can help to control costs by identifying and eliminating unnecessary tasks. By providing the optimal system, the CFO can help improve the visibility and accelerate the implementation of the new products.
An optimal new product introduction process contains four major steps:
1. Initiate the Project. A cross-functional team representing finance, engineering, manufacturing, sales and marketing, and quality, is put together as a core fo the team. An initial project plan is developed from the template based on best practices. Manufacturing and marketing perform trade-off studies to identify potential outsourcing opportunities.
2. Develop Business Plan. It is often critical to the longevity of the business to validate the profitability of the future product or service. The CFO, using standard business case templates, calculates the cost and business benefit of the project before significant costs are incurred. Marketing must provide the market opportunity, market risk, and technical risk to management so they can evaluate the main business drivers behind this project and their effect on the Key Performance Indicators.
3. Execute Project. The major effort and time is expended after the key project criteria are defined and the concerns of management are satisfied. The deliverables required for the next phase are tightly managed to provide focus and control costs. The team constantly updates the project plan, milestones, and costs, and communicates those updates to management. The CFO is key to managing the required resources in order to complete the project on-time and within budget.
4. Conduct Milestone Reviews. Milestones are reviewed throughout the NPI process, ensuring that the predefined conditions that need to be met to move on to the next phase of the project. Milestone reviews are necessary for management to decide whether to continue investing in the specific project. Go/No-Go business reviews must be held between critical phases of projects to prevent “throwing good money after bad” and to ensure that project development is on track.
Selling New Stuff to New Customers is the riskiest strategy. Marketing information is important to determine which new customers provide the likeliest ready source for new sales of new products meeting the customer needs. But the company bears a risk of alienating both the current customer base and the new customers if the products fail to match promises. Proper execution requires answers to key questions. Answers that your CFO can provide you. Answers you need to reach the best possible decisions. If you don’t have a CFO, well, “Every company, regardless of its size, needs a Chief Financial Officer®”