Kevin Moriarty On the Opportunity Cost of Creating Value
We recently spoke to Kevin Moriarty as part of our Accelerating value podcast series. Kevin was Principal at KMM Ventures at the time of this conversation and has since become the CFO of Turbine Aero.
Kevin helped us define value from a financial perspective, the relationship between value and time, and how to make value-based decisions.
Here are a few key insights from the conversation.
How does a CFO, even a growth-oriented CFO like you, define value?
From the CFO perspective, value is what type of revenue generation, earnings, cash flow is adding to the growth of the enterprise. Another area would be how our margins are performing. I think for my lens that it's monetary in many dimensions. As the finance leader, you're looking to grow the revenue, earnings, and cash flow of an organization.
How do you feel when someone approaches you with a business case that doesn't include how an investment is going to monetize to the benefit of the business?
So much of what I strive to do with leaders in the organization is to have some foundational plan. What are going to be some of the KPIs on the milestones? I definitely come at it from incremental spend to generate an incremental return.
So if I'm sitting down with the budget owner and that budget owner has a certain capacity, how have they thought about it within their own function? What is the concept? What's the targeted area we're looking at? What's the plan and how do we dimensionalize the plan? What KPIs are we looking at weekly, monthly, and quarterly? How best are we going to frame it to judge some level of accountability in the organization?
Is there a time scale on this that you consider to be acceptable or ideal? Do you have a bias for rapid payback? How are you balancing this in your head?
I think it depends on the dimension of the ask and the size of the ask. If we collectively feel that this is something we should see a return on within, say one quarter, then that would be a dimension of time. Also what I would say is it depends on the business cycle. Are we a long-cycle business or are we a short-cycle business? If I’m in a short cycle business, I need to make calculated decisions. If I have a new product launch or I have something else happening, I may want to see a payback within one to two quarters.
Whenever you make investment decisions, there are always consequences in certain areas. What approach do you take to this decision-making process?
Part of it is knowing you have to have some level of conviction in terms of what instinctively may feel right in terms of those investment decisions. But nonetheless, as a business leader, everyone has targets, no matter the organization.
It's an orchestration among the teams and organization to say where best for us to free up capacity, to make these investments for the future, and so much of it comes down to it all being cost-driven. As the CFO, there's a real comfort level in being able to just issue targets. “I need five percent reduction, ten percent reduction” and everybody goes off and goes marching on that path. Well, that will only get you so far. So I always found it in my instinct, or working with my peers and other leaders within the business is how best to effectively think about that, while you're managing to hit the current month number.
So when marketing comes to you during the budget season and makes the case, what is typically missing in your mind?
What I frequently find missing is the dimension of time. If we're going to run this type of campaign, here's our campaign plan, here's what we're looking to do. I would say understanding business requires a time dimension. What should be the KPIs, what are the indicators that we collectively know, because I view it from a finance standpoint. What are those key milestones or indicators?
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You’ve mentioned KPIs several times. One of the challenges in a function like marketing is that by the time something is a KPI it's in the past and there's nothing you can do about it. When you think about cause and effect in general, how do you think about that? Has it been feasible in the past to operationalize analytics to the point where you can really run cause and effect analysis in the business? Or has that been challenging for you?
If you go back historically there would be so much data, so much information, but it can be very difficult to pinpoint that intersection point on what led to X result based on that level of investment.
The technology today and the capabilities of today offer such different capacities. I think technology has evolved so much in the last twenty years that it's really enabled such an inflection point for us to be able to measure things more timely than we did years ago.
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Kevin Moriarty is a highly experienced CFO with a strong understanding of creating and developing business value with relation to finance. His experience has helped him develop a strong sense of creating value-based decisions for all kinds of businesses. The full podcast offers a lot of expert insights into this.
The Accelerating Value podcast series focuses on how we see, create, and plan value. Every week we talk to new guests, who are leaders across various disciplines. We understand their definition of value and showcase their expert insights to help you in your own quest to create value.
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