How Group CFOs of NIBE and Signify Are Future-Proofing: “Never Waste a Good Crisis”

The unprecedented crisis over the last few years has thrown global supply chains into further chaos, jeopardizing revenue streams across industries. As organizations scramble to find their way onto stable ground again, future-proofing supply chains have reemerged on the CFOs agenda with urgency.  

We spoke to Hans Backman and Javier van Engelen about how finance leaders can navigate the continental complexities of the current economic landscape.  

   

How do you plan to protect yourself from disruptions and prepare for the coming year? 

 

HANS: What I’ve seen as a finance manager, looking into the numbers, is an enormous increase in working capital, tying up more money on components and raw materials. But we hope that situation will ease going forward. The price increases we’ve seen are tremendous as well. It’s been a vital role of the finance community within the company to ensure and push for price increases so that we are not stuck.  

Looking forward, we see a new type of price increase coming on the fixed costs side, like utilities and wages. We need to cater to that. Because while the prices of raw materials and components seem to be decreasing a little, it’s escalating on the other side. We need to make sure that we compensate for that with price increases or cost savings. Going forward, keeping decent profitability is very important.  

 

JAVIER: First, we keep on working strongly to lower global dependencies. I think products and sourcing can be more regionalized than globalized. But relooking at our footprint and reducing dependency is not easy because the system of electronics is ingrained in the East, especially in China. It’s going to take years to develop an ecosystem on a different continent.  

Another thing is dual sourcing and taking significant price increases to protect our gross margin as a company. Raw material prices are going down, but labor costs are going up. There is inflation and there is a need to do some hardcore cost savings to protect profitability.  

“As I say, never waste a good crisis. We’re going to get stronger from the crisis than when we came into it. So, plan for the worst and hope that things will be better.”

– Javier Engelen 

 

What role does a CFO have within a company? 

 

HANS: We’re part of a team and we need to keep discussions ongoing with our colleagues in finding ways to solve this. Of course, the primary focus of a CFO is to look at the numbers and ensure profitability and a sound financial setup. But that is achieved by cooperating with colleagues in the company. I think the benefit of a CFO role is that you have the possibility to meet different people within the group and be part of several different discussions and highlight the importance of making money. If you do make money, that is when you have the possibility to invest in people, new products, and the business.  

So being active with your colleagues about having a good flow of products and ensuring a decent margin is very important.  

 

JAVIER: The first thing I’ve done in the crisis is to stress the importance of fiduciary responsibility in finance. We are here first and foremost to make accurate records and accurate data on time. In situations like these, I’ve found that it’s extremely important to have one source of data. Because if everyone starts inventing their own numbers, you can’t make decisions. Accurate data available on time increases the speed of decision-making. Without doing that, the rest is no use.  

The bigger role comes in how you influence decisions. There are a couple of things we’ve been trying to do. As the CFO, I think there’s a unique opportunity given to us – it’s a blessing and a curse – that in a crisis, you can bring things together. The first part is making sure we help people anticipate. Some things we couldn’t foresee, like the COVID pandemic. But some, like the supply chain issues, there were early signals. There was an overheating of the economy, and chip manufacturers cut down production. There were things hinting that a problem was coming up.  

What I’ve always advocated is that the typical old finance function was looking backward and reconciling numbers. The new finance function as a business partner has to be much more anticipating – scenario planning. What indicators do you have that will give you certain direction? 

Another thing in a crisis is to provide options. Having a more objective view of the business as a finance person allows you to step back and see that there is more than one option. You always must have a backup because you never know what the world is going to throw at you next. 

One of the key things we’re also leading out of finance in this company is risk assessment. Every year, we do a macroeconomic risk assessment looking forward and we translate that into strategic plans. One of the roles of a CFO is to make sure that the rest of the company doesn’t panic. We can take a step back and make sure there’s more rationality in the business. We have to communicate and make sure people don’t panic. 

 

So, communication is very important. What other qualities make a good CFO and leader? 

 

HANS: The fiduciary responsibilities of course are a basis. But then coming into the communicative part, that is certainly very important. Mirroring what Javier said earlier about numbers, it should be the same across the company. You need to ensure that you have a manual that is agreed upon by everyone and it’s understood. You need to keep it simple and based on common sense.  

We only have four financial targets within the group which are clearly communicated. Below that, we look into certain areas that need focus, but these four financial targets are the same for each company.  

“Knowing your numbers and the tools around them is important but being able to communicate and bring the message across is also crucial.”

– Hans Backman 

JAVIER: Especially in the current situation, being able to anticipate versus explain. The weight put on a CFO’s shoulders now is more on helping to make business decisions without having lost that fiduciary responsibility. It basically means that we are here to anticipate more than to reconcile, to find solutions more than to control. To do that, we have to challenge existing practices and you only get a license to operate if you understand the business.  

The profile has changed. You have to be able to talk business and be more creative in finding new solutions. You have to bring all the functions together. I often find myself in a mediation role between different departments, bringing them back together on the same page, which means communication and interpersonal management skills in a global company become absolutely important. We have to instill trust in people to believe that we’re doing the right thing. 

 

And collaboration with different C-levels is also crucial and something you have to do more, right? 

 

HANS: Absolutely. We try to keep an open dialogue as much as possible. 

What is also important for us with the empowered structure we have with more or less independent companies is setting clear targets for each company rather than telling them what and how to do it. We tell them what they need to achieve. Of course, we also enable people to communicate with each other and take responsibility for the targets that we set. 

JAVIER: I would echo the same – clear values and key operating principles. I will admit that I also see the drawbacks of what Hans was saying. We have a lot of dispersed KPIs and that sometimes does not help as it drives a more siloed mentality.  

I think it’s important to bring cohesiveness to the company through messaging – clear priorities, strategic planning, and setting frameworks. We should not get into micromanaging how to achieve the set targets, but you can count on the creativity and expertise of people at the lower level to tell you how it can be done.  

 

How do you know that you’re ready for future disruptions? 

 

HANS: You never know about the future, right? Just making plans for the next months is hard enough. We tried to broaden our setup. If we talk about supply chain disruptions, having one partner is not good enough. That also puts more demand on your ERP system. Also, redesigning. Is there more we can do in-house? On top of that, we are beefing up our purchasing department and being more struct with suppliers.  

As Javier mentioned, we are also looking ahead with the numbers, doing forecasts to try and anticipate what’s coming and be prepared. In this lies increased flexibility.  

 

How can CFOs ensure they are future-proofed? 

 

JAVIER: It’s going to be hard because you can’t predict everything. Having said that, one of the best practices I’ve seen, at least in Signify, is the risk assessment process. What I appreciated when I came in was having an annual dialogue with the supervisory board about the risk environment. Starting with a good dialogue at least once a year and taking a step back from the day-to-day business to see what is happening around the world – political tensions, natural catastrophes, labor increases – those are predictable, and you can take those into consideration. The risks are often there but incorporating that into your plans is important.  

So having your finger on the pulse of what’s happening outside of the company, you get some predictability of the future and what core things will impact the company, and what you should pursue. This gives you the agility to adjust for what comes next.  

The second thing is to do regular scenario-planning fire drills. This is easier said than done. But doing drills for cybersecurity or business continuity shows a living situation.  

“The name of the game is to anticipate as much as you can and be ready to adjust when course corrections are needed.”

– Javier Engelen