Service / Industry: New York, NY
Traditional approaches to performance improvement have tended to focus on EBITDA improvement or cash flow improvement as separate challenges that can be addressed by separate teams and are owned by separate functions. Sales are responsible for growing revenue; procurement is responsible for lowering cost; operations are responsible for inventory; and finance and shared service centers are responsible for cash. However, we believe that integrating these approaches is critical for Aerospace & Defense industry organizations. Those with a unified capital management strategy will not only weather the current turbulence but emerge as market leaders in the post-COVID-19 world.
Cash will always remain the “lifeblood of any business”, as our colleagues Charles Lowrey and Christopher Duggan wrote recently. They go on to say that while CFOs must continue to embed a “cash culture” in the business, for those that seek to emerge from the disruptions of the last 12 months as leaders, this can and should be part of a broader conversation.
Historically, we have seen firms treat performance improvement programs as primarily EBITDA-oriented. This has often led to a token working capital aspect, or firms aggressively focus on working capital without considering the impact on margin. Consider these typical examples that we have observed over the years:
A proper diagnosis of the issues may correctly identify the triggers, noted above, as root causes and address them in a targeted fashion; however, all too often we see teams become a “hammer looking for a nail” and focused on their area of specialty while ignoring the bigger picture.