ShoreTel CFO and senior vice president Mike Healy vividly recalls the one time in his four years with the company when it missed its quarterly revenue forecast. “It wasn’t a big miss,” says Healy, “but our stock went from $13 to $6 in one day.”
The fact that it was the last month of 2007 didn’t help, but Healy says a major contributing factor was a lack of visibility. Not that the company couldn’t see into its sales pipeline: it knew what its then-400 channel partners were doing in terms of selling ShoreTel’s VoIP products. The problem was what it couldn’t see. The company hadn’t realized that it hadn’t recruited enough new partners to “pick up the [revenue] slack” in the quarter’s final month.
Today, ShoreTel relies on a portal to get a better grasp of how its partners are faring, and Healy is confident the company’s stumble won’t be repeated.
The recession certainly drove home the message that if cash is the blood that keeps a company’s cheeks rosy, the sales pipeline is the major artery through which it flows. As Paul A. Boulanger, managing director, finance and performance management, for Accenture, puts it, the downturn “made CFOs wake up to the volatility of the environment.
“I bet that if you dig underneath companies that had earnings-per-share surprises,” Boulanger continues, “it maps to disconnects with sales pipeline management systems.”
These days, a CFO’s ability to get near-real-time feedback on leads going in one end of the pipeline and wins coming out the other is, according to Mark Thompson, consumer technology practice leader for The Brenner Group, “table stakes.” The tools that enable visibility “are not that expensive anymore,” Thompson says. “What’s key is the skill in matching the tool to a process. That is the CFO’s real job.”
That, and maximizing financial performance. Doing so requires good tools, better processes, and, as Jonathan L. S. Byrnes, MIT senior lecturer and author of Islands of Profit in a Sea of Red Ink, says, the ability to “understand what you’re not doing, what you’re not seeing,” such as the aforementioned dearth of channel partners for ShoreTel in late 2007.
A beating from Wall Street is not the only punishment awaiting CFOs who miss forecasts. According to a 2009 University of Illinois study, “missing one quarter of consensus earnings forecast…increases the probability of CFO dismissal by 18.57%.”
Time to Act
So there’s a lot of pressure on CFOs to manage earnings if a peek into the pipeline reveals that revenues are trailing. But Forrester Research principal analyst Andre Pino says CFOs need to go beyond what they see. “If sales historically falls short of its projections,” he says, CFOs need to add a factor to the pipeline that will make it reflect the plan more realistically. “One of the advantages of sales force automation (SFA) is that you can determine when you’re off track so you have time to put corrective actions in place to offset a revenue shortfall,” says Pino.