Operationally-oriented CFOs capable of genuine value creation across multiple functions have ousted the reclusive finance chief of yesteryear.
For companies dealing in physical products, the ability to effectively “walk the floor” is a vital trait for CFOs.
“Sponsors want a white-collar brain but a blue-collar style of engagement. They want CFOs who are not afraid to get their hands dirty and who actually seek out opportunities to do so,” says Falcon’s Rob Huxtable. “CFOs need an insatiable curiosity in order to develop full command of a portfolio company’s operations and to intimately understand opportunities for margin improvement.”
“Walking the floor” is a concept rooted in LEAN management. The term originates from the Japanese word “gemba” or “genba” meaning “the actual or real place.” A Gemba walk represents a proactive effort from management to spend more time among their company’s frontline workers. Though the concept can be applied anywhere from retail aisles to sales bullpens, the most traditional application sees management establish a consistent physical presence on the shop, factory or warehouse floor.
Companies targeted for private equity acquisition often possess substantial room for waste reduction or process improvement. When leveraged effectively, Gemba walks help CFOs identify extraordinary opportunities for value creation. Sponsors who deploy portfolio company CFOs with this skillset often capture millions of dollars in margin expansion that might otherwise escape them.
For instance, a Gemba walk led the CFO of a middle-market ready-to-eat popcorn company to the discovery that the holes in their sorting screens were too large. Instead of only filtering out un-popped kernels from the finished product, large amounts of good popcorn were being thrown out from every batch. Addressing the issue reduced scrap by 45% and helped the executive deliver on a $25 million annual savings plan.
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