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| Mike Lehman |
Drawing upon 20 years of experience at Sun, most recently as CFO, EVP of Corporate Resources, and a board member, Mike Lehman knows what it takes to drive operational excellence across a company. He shares his thoughts with Sun Executive Boardroom readers.
Q: How do you define operational excellence?
Lehman: There are many ways to define it, but I simply look at it as doing what you say you're going to do with thoroughness, accuracy, and timeliness.
Q: What are the required components?
Lehman: It's important to be very precise up front about what the goal, task, or deliverable is so that mutual expectations are set. Next you need to decide how to measure results and what the timelines will be. And then you execute.
Q: How does a company stay on track?
Lehman: Companies must be clear about how they want to be viewed and measured. They must have quantified, published measures against which they hold themselves accountable. Then it's easy to view the reports to see if you're on track.
About a year ago at Sun, the executive management team decided that the principal way we wanted to be measured for FY07 was to have at least 4 percent GAAP operating income for the June quarter. We made that goal clear so that people understood what it was, when we would deliver it, and what the basis for achieving it would be. We reported progress throughout the fiscal year, reiterated the goal over and over, and in the fourth quarter we delivered on it.
Q: Where should companies look first to make changes and seek resolution if things are off track?
Lehman: That depends on what part is off track. If revenue appears to be off track, there are a couple places to look. You can look at products. Are they late? Of poor quality? Not competitive? You discuss what you are selling and your sales organization's effectiveness. Are there issues that need to be addressed such as delivery via the supply chain? It depends which indicator is off track. You look at the typical pieces behind that and go after them one by one to figure out what needs work.
Q: Sun talks a lot about transparency. Why is transparency important in today's enterprise?
Lehman: One reason is that there are lingering issues in financial markets about companies and management in general. Openness and transparency help restore management integrity in the financial markets, and ultimately that's good for society. This is a reaction to some of the corporate scandals several years ago, and it's important to continue to repair that. But more importantly, it gets back to what I said earlier, that as a company, the best thing a management team can do is give stakeholders clear objectives, goals, timelines, and reporting so that people have the data they need to make informed choices.
The best thing a management team can do is give stakeholders clear objectives, goals, timelines, and reporting so that people have the data they need to make informed choices.
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Q: What do you think is the most important job of CFO?
Lehman: The principal thing a CFO can do differently from others who report to the CEO is to openly (or privately) challenge the CEO to make sure that everything is being looked at across the business. The CFO is the most objective person on the CEO's staff, and he or she has the fiduciary responsibility to shareholders to challenge the CEO.
This leads to the second aspect of the job, which is helping the CEO define objectives and business models, make investment choices, and allocate capital — basically setting the objectives to which the company will be measured externally. This aspect of the CFO's is also different from other people on the CEO's staff.
I think the CFO should be an advocate for, and example of, operational excellence and integrity. In part, this means ensuring that the operational excellence that people are agreeing to is reasonable. If the hurdle is too low, it's not operational excellence. CFOs are responsible for ensuring that the standards we hold ourselves to and the objectives we pursue are at least reasonable and/or challenging. I'll pick on manufacturing with a simple example. Let's say a company promises to deliver an order within 60 days of the customer ordering it. That's not very challenging — but 48 hours certainly is.
CFOs are responsible for ensuring that the standards we hold ourselves to and the objectives we pursue are at least reasonable and/or challenging.
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And then obviously, the finance organization has to hold up under the light of scrutiny. What are the customer satisfaction metrics? What are the external benchmarks by which one is measured? What's the finance spend as a percent of revenue? What are the financial and balance sheet metrics? There is a lot of external data that you can pull together to determine whether or not you have an effective finance organization.
Q: What are the toughest issues facing CFOs today?
Lehman: It's difficult to generalize across industries. In our industry, the toughest issues are around balancing the need for continued growth and investment in innovation with the need to be more efficient, effective, and low cost. Finding that balance is probably the most difficult. It goes back to the recommendations and partnership with the CEO about investments, assets, and capital allocation. Should we invest more in R&D, sales and service, or IT infrastructure to make our employees more productive? Facing those trade-offs and making those decisions is probably one of the harder things we do.
Q: How has the CFO position changed in the last five years?
Lehman: I was CFO at Sun five years ago, took some years off, and now I'm back, so I have a perspective on this. The answer is that it hasn't changed dramatically. Many people argue that the advent of Sarbanes-Oxley has caused the CFO role to change — that it has relegated the position to one of scorekeeper with an internal focus.
The biggest challenge continues to be that the CFO is the guardian of the company's business model and, in many cases, its reputation.
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I would say that's absolutely not the case. I felt CFOs had the same fiduciary obligations to our shareholders and the same requirements to do things well five years ago that we do now. There happen to be more rules around documenting, but the concept remains the same.
The biggest challenge continues to be that the CFO is the guardian of the company's business model and, in many cases, its reputation. In conjunction with the CEO, a CFO is one of the principal communicators with the outside world, including investors, shareholders, customers, and other stakeholders. And it's even more important and challenging in this day and age to be a respected public speaker.
Five years ago, I didn't need to be as visible as I do now. Today, there is nowhere for the CFO to hide. In the past, there was more of a view that the CEO would be the principal spokesperson. At many companies, it has become a two-person team.
About Mike Lehman
As chief financial officer and executive vice president of Corporate Resources for Sun Microsystems, Lehman holds management responsibilities for the company's finance, information technology, and global business services functions. He reports directly to Jonathan Schwartz, Sun's chief executive officer and president.
Lehman's blue-chip credentials include a long and successful association with Sun, both as an executive and, most recently, as a board member. He served on Sun's board in various capacities from 2002 until rejoining the company as CFO in February 2006.
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