Ep. 46: Larry Serven - How to Execute Your Strategy for Long-term Value Creation

Larry's Resources:
Key Principles of Effective Financial Planning and
Analysis:
https://www.imanet.org/insights-and-trends/planning-and-analysis/key-principles-of-effective-financial-planning-and-analysisThe
12 Principles of Best Practice FP&A:
https://sfmagazine.com/post-entry/november-2017-12-principles-of-best-practice-fpa/The
People Side of
FP&A: https://sfmagazine.com/post-entry/july-2019-the-people-side-of-fpa/

FULL EPISODE TRANSCRIPT
Mitch: (00:05)


Welcome back to Count Me In, IMA's podcast about all things
affecting the accounting and finance world. I'm your host Mitch
Roshong. And today's conversation is between my co-host Adam
Larson and our guest Larry Serven. Larry talked to Adam about
strategy, execution, the role of the finance team, and creating
long-term value and how companies can better align their strategy
with their actions. So now here's episode 46 of count me
in. 


 


Adam: (00:36)


So, Larry, what is meant by strategy execution and why is it
important for creating long-term value? 


 


Larry: (00:43)


Well, you know, when you think about it, strategy execution is
really about turning plans in a reality, making them happen. You
know, actually doing what you said you were going to do. You
know, I like to use analogies because you know, I personally find
them helpful. So, I imagine I have a goal to lose 10 pounds.
That's great. And I have a strategy and my strategy is to
exercise more and eat less. That's a good strategy, you know,
that's terrific. But what ultimately counts is whether or not I
effectively execute that strategy in and lose the weight. Right?
So personally, I would take a mediocre strategy that's been well
executed over a great strategy, poorly executed, and I would do
that any day of the week. And frankly, so will most investors. I
started my career at Pepsi Cola international and that's a
company that really prides itself on execution and they kind of
have to the beverage industry is highly competitive and to
survive you really need to be you know, you have to have a great
strategy, but you also have to have world class execution. So,
Pepsi actually paid a wall street firm to come in and determine
the value of effective execution on the stock price. Now there's
a whole back story to that I could go into if we had more time.
But they concluded that predictability of earnings accounted for
close to four points of the price earnings ratio. And that
translates into about $50 billion in market cap. So, for Pepsi
consistently executing strategy was worth about $50 billion. And
since all the executives held stock in the company, you know, the
value wasn't some abstraction. it was real money in your wallet.
So, if you're a public company, then strategy execution is worth
a whole lot. But you know, even if you're privately held, an
effective strategy can be very valuable when meeting loan
covenants, dealing with bankers. But I think even more to the
point strategy execution means you're hitting your goals,
achieving what you set out to achieve. And that's what every CEO
and CFO wants. And it's, you know, what they get paid to
do. 


 


Adam: (03:16)


So of course, every company wants their strategy to be executed
perfectly. But why do they typically fail? 


 


Larry: (03:27)


Well, keep in mind the really four fundamental things necessary
to execute a strategy assuming of course you have one to begin
with. first people need to know what it is they need to do.
Second, they need the proper resources to get it done. Third,
they need some motivation to get them done. And finally, there
needs to be transparency. Transparency in the goals and
objectives, transparency and reporting, the actual results also
transparency in the progress that's being made. So, for many
organizations one or more, or sometimes all four of those
fundamentals are missing. And you know that's obviously a problem
or that's obviously a problem, but equally fundamental, there
needs to be perfect alignment between all four, but more commonly
they're disjointed. they all exist in some form, but they're not
integrated in, they're not reinforcing. So, you know, for example
the strategy calls for the company to focus on innovation to
increase market share and revenue, but it never actually gets
translated in concrete terms into an operating plan or the budget
process. which is where the real allocation of resources happens.
It doesn't actually reflect the strategy. You know, I had a CEO
tell me you know, just last week about his frustration, you know,
spending three days in an executive retreat that define the
strategy and specific initiatives to execute it. He said, the
session couldn't have gone any better. Everyone was really
excited. You know, they had a real plan. But three months later
when they were, you know, in the budgeting cycle, he was
presented with a budget P and L and he has a seemingly very
simple question where's the strategy and all this. And all he got
was blank stares. People hadn't actually thought through what
resources they needed to properly execute the strategic
initiatives that they committed to, or in some cases they had,
but it was done very quickly with the back of their left hand.
And it wasn't worth the paper it was printed on and then, you
know, you think about incentive compensation, you should be able
to ask anyone what their goals are and see how they reflect the
execution of the strategy. And I think we're going to be talking
about a case study a little bit later on. And I think there's
actually a good example there. But you know, for many companies
you'd be hard pressed to see a clear line of sight between an
individual's incentive comp and the strategy. You know, I could
go on with, with other examples. But when you think about all
four requirements being in place and actually well aligned, it's
frankly not surprising that most companies struggle with strategy
execution. 


 


Adam: (06:35)


So, what if you're listening to this podcast and this is the
first time you've heard these four elements mentioned at the same
time and executing strategy, how would one go about identifying
which one they're missing? 


 


Larry: (06:46)


Oh, that is a great question. the practical advice here, and I'm
big on practical advice, is map out today your processes from
strategy, right through budgeting through the reporting of, of
actuals your compensation. incentive compensation. We map it all
out, put it down on paper, not the way you think it should exist
in the future, but the way it actually exists today and those
missing pieces of the puzzle, those disconnects are going to pop
right off the page when you do that. So, the advice to get
started is map it all out today and you're going to see where the
disconnects are. 


 


Adam: (07:37)


That's some great practical advice, Larry. So, what role does the
CFO and FP&A have in general in general have in strategy
execution? 


 


Larry: (07:50)


Well, you know, what you think about it, a finances role is to
co-create and then o...