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How ITT Used FP&A to Transform Itself and Boost Profits

  • By Nilly Essaides
  • Published: 3/29/2016
increaseOnce a multibillion-dollar organization comprised of an insurance business, a hotel chain and even a sports team, ITT is now a lean and highly profitable organization with annual revenues over $2 billion. As part of this transition, the company had to shift its mindset from that of a holding company that drove performance at a very high level, to that of a strategically integrated operating company.

That shift had a major impact on financial planning and analysis (FP&A), according to Emmanuel Caprais, vice president of strategic and financial planning.  “My team is driving this every day,” he said. “We quickly moved to a grounded approach, understanding the performance drivers of our businesses at a deeper level and activating our business partnerships to ensure we were focusing on generating value for the company. FP&A transformed from a predominantly reporting focused function to one that’s much more embedded within the business.” All this was done with a staff of five, relying mostly on spreadsheets.

Pushing for a bottom line viewpoint

The FP&A corporate function is tasked with managing expenses, i.e., the costs that creep up on the back of business initiatives, while increasing transparency of project spending. “We’re always asking ourselves the question if our company initiatives are truly profitable,” Caprais said. “While the company has been very profitable overall, last year the challenging budget that we built together and the FP&A support provided to the corporate functions has helped reduce cost by 16 percent on a sustainable basis.”  The challenge has been convincing everyone that making changes is necessary, in an already profitable environment. “It’s been a journey and a lot of things are still left to do, but in nearly two years of work we’ve made significant progress,” he said.

The biggest obstacle FP&A faced was that the organization had only a partial understanding of the actual drivers of the business. While the company was performing well against budget and its peers, there was a lot of conversation necessary around required efficiencies. FP&A not only assisted in creating the budget but also the monitoring system that ensured business unit managers executed the plan.

“We needed to convince everybody that there’s value in consulting and driving performance not only in the top line but also in the way we operate our business and drive waste reduction, for instance in each of our activities. Many businesses focused mainly on top line growth rather than also the efficiency of cost structure,” Caprais said. “Efficiency is essential so that any increase at the top would result in a disproportionate impact on the bottom line. Yes, we need to grow but we also need to simultaneously decrease costs to expand margins.”

FP&A started looking at its costs from variable and fixed standpoints to decide if it needed to work on labor efficiency and materials or restructuring and indirect cost-cutting, or both. “ITT ended up restructuring even profitable units in some cases because FP&A knew it could operate them more efficiently this way and be even more nimble in case of a change in economic environment,” Caprais said. “We did not set a floor or a ceiling on the opportunities we looked at. Instead there was a new focus on lowering our breakeven point.”

Before moving to corporate FP&A, Caprais was the CFO of a business unit where he managed, through cost management, to boost a 13 percent margin to a 17-18 percent margin business. “One way we did this, in a capital intensive business, is by pushing for machine efficiency,” he explained. “Initially it was in the low upper 70s/low 80s, which is still pretty high. But if you can increase production without increasing fixed costs, you can have that disproportionate impact on the bottom line.”  

Machine efficiency was pushed to no less than 90 percent, “and we were able to squeeze out of our existing equipment 1 million products per month,” he explained. His mission was to use these concepts and replicate the same results at a corporate level, by digging deeper into the detail and operational drivers, fostering greater accountability, and driving the conversation around efficiency.

A longer version of this article will appear in an upcoming edition of AFP Exchange.

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