A more sober vision of the future leads to a different type of risk management, too. CFOs say they’re doing far more “what-if” analyses, with a range of contingency plans ready to go. “We’ve done a lot to increase liquidity and decrease leverage, but there are many more [actions] we’ve teed up, including asset sales and receivables securitization, depending on what happens,” says Prabhu. “It doesn’t mean we’ll do all or any; what we want is optionality.”
Keep a Closer Eye on Customers
keeping an eye on customer credit is standard practice during any downturn, but this time it may be here to stay. Corning, for one, has begun requiring customers — many of whom are bigger than the $6 billion maker of glass-related electronics components — to disclose their inventories and other financial information. Corning then models their financials, with a view toward answering the question, “Will they have enough money to pay us?” says CFO James Flaws. With 70% of Corning’s customers located outside the United States, some of which are “living on low margins and big debt,” Flaws says his team “works very hard to keep our customers in business” and may even extend terms if necessary.
Many CFOs responding to the survey say credit and collections has become a top-of-mind issue as well. Some 40% plan to monitor customer credit more closely even after an economic recovery. “We’ve become much more conservative in providing credit to our customer base, even to the point of losing sales because of our recently restricted credit-policy adjustments,” says one respondent.
CFOs have also become more skeptical of client demand in forecasting. In August 2008, semiconductor maker Marvell Technology faced analyst scorn when CFO Hosein revised guidance downward despite reporting a better-than-expected fiscal second quarter, citing concerns about the economy and end-user demand for consumer electronics that its chips help power. Analysts pointed to the sales increases that Marvell’s customers were forecasting and speculated that the issues were company-specific and not related to the economy. As it turned out, demand for Marvell and the industry dropped even more sharply than Marvell had forecast, making Hosein look good in retrospect. “Most people just look at customer orders,” says Hosein, “but if that’s all you do it’s problematic, because you’re trusting that clients know their demand.”
Reengineer the Workforce
More than half of survey respondents say they expect to approach their staffing needs differently in the future. While that means a bit more outsourcing at some companies, or moving to a shared-services model at others, there are few wholesale shifts to report. Instead, what may persist is the relatively new notion of hiring people for a shorter workweek and less pay. Other CFOs say it’s a prime time to reevaluate how many people they really need in a given function and how they might reshuffle assignments.
“I’m really looking at resource allocation in a way I hadn’t been before,” says Patricia Morris, CFO of SourceForge, owner of several technology media Websites. “It’s a good time to ask, Do we have the right people in the right places? And do we move people around to get the benefit of their experience in other areas?”