Finario sat down with former ITT Corp CFO Tom Scalera to talk about critical issues facing the CFO, including managing ROIC amid shorter tenures. Watch the full interview here.
Tom Scalera knows a thing or two about capital planning.
As CFO of ITT Corporation for nearly a decade, he oversaw the firm’s vast industrial portfolio, which included automotive, aerospace, and energy businesses.
When he was named finance chief, the company had a market cap just above $1 billion. By the time he left, it had climbed to $8.6 billion.
The key to his success? A laser focus on deploying capital effectively.
The importance of organic growth
When Scalera first became CFO at ITT, many of its businesses were undercapitalized. His first priority was spurring organic growth by making investments that could provide the highest returns on invested capital (ROIC).
As customers saw the renewed commitment ITT was making to its industrial arm, they were willing to sign up for long term partnerships with the company. The board, investors, and other stakeholders saw the strong ROIC performance Scalera had achieved, which earned him more credibility.
He admits that “we had to prove to investors and stakeholders that we knew how to deploy capital. A lot of people didn’t think we’d be able to do it effectively. The way we earned that credibility was through efficient Capex investments and great returns on those investments.”
The clock is ticking
Although Scalera ended up being the finance chief at ITT for nearly a decade, he understands that CFO tenures are often much shorter. According to Korn Ferry, the average tenure for a CFO is just 4.7 years.
“As a CFO, there’s only so much time you’re afforded in that seat. The average life expectancy of a CFO is not getting longer. So, the most important decisions that have to be made are capital allocation.”
The board and other stakeholders recognize that a CFO’s capital decisions will have ramifications long after they’re gone, so seeing strong ROIC performance early in the CFO’s tenure is paramount.
Unfortunately, many finance departments lack sophisticated tools that enable effective capital management. Excel lacks the ability to drill down, look at historical trends, or answer even basic questions about Capex performance.
Scalera highlighted that a tool like Finario enables a CFO to see relevant metrics in real time, allowing them to make better decisions. “A tool like Finario where you’re allocating capital will make CFOs more successful. It will.”
Enabling FP&A to add more value
Scalera noted that, in many organizations, other departments complain that FP&A spends too much time on non value-add activities.
He said that many CFOs overlook investing in systems that allow them to achieve their number one responsibility—stimulating organic growth.
“Give the team the best tools to do [non value-added work] efficiently, then they can free up time to do other things that can help grow the business strategically.”
Achieving organic growth and strong ROIC performance is priority #1 for CFOs. And to achieve the best results, they need the best systems.