‘Competing On Costs Is A Zero-Sum Game’

Eugene Moorcroft, CFO, Servicon
Increased market share comes from superior customer value, says Eugene Moorcroft, CFO of Servicon. Focus there.

If you want to improve profits, start with the customer, says Eugene Moorcroft. The finance chief of Servicon, a hospital environmental services provider and commercial cleaning services company based in Culver City, California, Moorcroft argues that better profits will follow suit.

Increased market share comes from superior value, Moorcroft tells StrategicCFO360. He talked about his approach to the issue, how to respond to unexpected challenges and why “the CFO’s responsibilities are no longer finance-specific but organization-wide.”

How can a CFO better balance profit concerns with customer needs?

Competing on costs is a zero-sum game. It is enticing to compete on efficiency and to stress operational effectiveness and see it as a silver bullet answer. But really it is just table stakes in today’s marketplace and thus a requirement to be a player in the game. At the end of the day, if cost is the focus, then you are ultimately competing against yourself.

Therefore, the one tip I can offer on how a CFO can better balance profit concerns with customer needs is to always be focusing on creating superior value for your customers—in everything you do—as compared to your competitors, and then to seek a way to drive the delta between value and cost.

Let us not forget that price and volume are the key byproducts of value. So, most importantly, these two factors will determine how much value you are creating for the customer. Ultimately, if you are producing better value than your competitors then you can charge a premium price—without sacrificing volume. Or, conversely, you can improve your market share at analogous prices.

Consequently, market share then is a direct offspring of customer value and, relatedly, price then is also a derivative of customer value. Therefore, with these two measures, you can quite readily assess if you are providing superior value or not and use them as an analytical tool to determine the best way forward. Clearly, the goal then is to maximize the spread between value and cost.

What are lessons learned for the CFO position as one changes industries?

Regardless of industry the question of value does not change, be it societal value, business value or balance sheet value. What does change is how the organization in its industry goes about providing a positive net contribution to society, drives strategic value and delivers financial performance. Identifying industry dynamics, key players and key differences, along with the firm’s strengths and weaknesses allows one to determine and focus on value creation drivers. Ultimately, it’s the why and how that matters in each industry.

Therefore, the job of the CFO is to understand industry competition and profitability and the firm’s position. Analyzing the industry’s structure is fundamental and then matching that up with the organization’s value creation business model is critical to identifying opportunities and threats. It sounds basic but is difficult to do properly. However, if done right, it provides rich avenues for growth and ideally, the much sought after blue ocean prospects, as you set a path distinct from your competitors.

How can a CFO be prepared for an unexpected act of God that will no doubt affect his or her business?

I think the best way to prepare for these unexpected events is by seeking to uncover blind spots via developing crisis events and then planning how you will react if any of these hazards were to occur. The best way to operationalize the organization’s readiness for these crisis events is by performing stress tests. Meaning, select the hazard and determine a plan of attack and then stress test the plan to identify gaps and weaknesses.

The idea is to develop rich narratives that are inclusive and full of detail to drive creative and insightful thinking. The goal is to make sense of the complexity and to use a system thinking mindset on how the organization will respond. The good news is that current scenario-planning models can most probably be repurposed for stress tests. An ideal outcome is to build the capability as part of routine planning processes.

What are the key skills to being a successful CFO no matter what the industry?

The CFO role has evolved from wearing many hats to having a long and wide top hat. One can imagine an Ascot with an extra broad brim. The CFO’s responsibilities are no longer finance-specific but organization-wide. Therefore, I believe the skills to being a successful CFO no matter the industry is to be a value-added dynamic strategic player, operationally savvy contributor, intellectually curious change agent and organizational influencer.

As is well known, the CFO has an all-important seat at the table and is consequently expected to contribute by sharing their point of view, regardless of the message being welcome or not. Not only are you a trusted advisor to your peers, across functions, but you are also required to have a strategic operational focus.

Additionally, today’s CFO is expected to make an impact by being an innovator and change agent, while juggling the status of being an important influencer at the same time. In due course—in order to be successful then—it’s about elevating the CFO role.