How to turn finance turnaround - Coca Cola Beverages FD Walter Leonhardt
In July 2016, ABI merged with Coca-Cola and local bottler SABCO into the new entity Coca-Cola Beverages South Africa – and Walter Leonhardt, ABI financial director, had his transformative work cut out for him once again. In this interview, we speak to Walter about what it takes to establish a culture of continuous improvement, the innovative ways his ABI finance team overcame its challenges and the secret ingredients of a prize-winning leader.
"If you want a perfect situation before you start moving, you will never move on anything."
When his name was called out twice to collect two CFO Awards on 12 May 2016, Walter Leonhardt looked like one of the happiest men on Earth, grinning from ear to ear, and even celebrating with a jubilant "Yeehaw!" - something fairly uncharacteristic for top accountants. As finance director of SAB Miller-owned Coca-Cola bottler ABI, Walter walked away with both the Finance Transformation Award and the Compliance & Governance Award - and was one of the top contenders for the CFO of the Year title - scooped up by Woolworths FD Reeza Isaacs. "To be honest, what meant most was the recognition for the journey of the people at ABI," he says a few months after the annual South African 'Oscars for CFOs'. Walter makes a point of sharing his awards success and threw a party with his finance team to celebrate. "We have been working very hard and decisively, with clear goals in mind. We have been improving all the time and these awards are recognition for a journey well-travelled. I was sorry that the whole team could not be on stage to receive the awards. These are not my awards, but theirs - I have told them that on many occasions."
With Colin Brown and Bongani Nqwababa as previous winners for their massive accomplishments at Super Group and Amplats, it is clear that the Finance Transformation award is one of the most coveted of the annual CFO prizes. His own biggest accomplishment, Walter says, has been to instill a culture of always wanting to do things better at ABI. "We have established a continuous improvement mindset. Coming from a fixed mindset, that has been a rewarding journey."
That doesn't mean no restructuring had to take place, with some classic measures like centralisation and the introduction of better technology. "Standardisation has been important, so we could focus on exceptions. The biggest win was in accounts receivable, where we could go from 146 to 71 people in four years, by centralising the department and introducing a new system." Perhaps even a bigger 'trick' was the close collaborations the finance team started with other departments.
"For example, we worked with our sales people and empowered them to have an accounts receivable discussion with customers. We put an app on the phones of the sales people, which immediately shows the limit, account status and overdue amounts of a customer they visit. Instead of only selling, they can now have a factual discussion on overdues where required. That has helped."
Pictured below: Walter with Sharon Horsten from Thomson Reuters
Even as Walter sings the praises of his finance team often, he says the real success follows the way his team works intimately with the rest of the business. "We have a clear-stated objective of improved productivity. Technology improvement is important for that and needs to be an integrated approach with sales, distribution and manufacturing. Similarly to our work with sales, we have also worked to improve delivery administration, much enabled through technology. Seven years ago, we had to write off a frightening amount because of multiple process failures in the administration of our deliveries - especially to big national accounts. I had just started when this problem surfaced and I wasn't sure if I would survive it. It was very bad. But we set out to fix it and today we run a pretty good show, getting excellent administration ratings from our customers, including our big national accounts. In fact, I just recently received a letter from the group creditors manager of one of South Africa's largest retailers in recognition of the way in which we manage their account and make their lives easier."
Walter is a South African Breweries stalwart with 21 years of service, that took him from Bloemfontein to Bethlehem to Johannesburg - and from beer to soft drinks. He clearly remembers those rough days at ABI and without having to think about it, pins the date on 8 April 2010. "Our CEO then was a brutal guy, who was incredibly capable and knowledgeable. ABI was in trouble. I was there for two years. I could have walked away and said it is not my problem; I could have easily found a new role within SAB. I hadn't created the problem, but I knew what to do and I knew I had good people. Of R1.3 billion in receivables, R730 million was overdue at some stage Now, in a good month there is less than one percent overdue. To accomplish this, we had to work hand in glove with our distribution colleagues. We used lots of social systems, IT systems and apps. I can't tell you how proud I am that we have accomplished this. All through great, dedicated and focussed people." Meanwhile, through natural attrition only, the finance headcount decreased from 304 to 151 between 2010 and 2016.
"The cost of the finance team is now only 1%of our total cost, down from 2%, which means that finance itself has contributed 100 basis points to our profitability while lifting customer service. That gives me a real sense of achievement."
Clarity and buy-in
Each finance transformation of this magnitude comes with a recipe for success that sits squarely with the CFO, no matter how much praise they deflect. Whereas Colin Brown used his incredible IT savvy and Bongani Nqwababa firmly took hold of the strategy of the entire company, in Walter's case his leadership style has been a crucial factor.
"I think there are two important aspects: being clear and getting people's buy-in," he explains. "If everyone understands, sees and knows what we are working toward, then you are halfway there. And then you need to create excitement about the journey, instead of fear. The keyword here is engagement. As a leader, you need to consistently be in touch with people's fears, emotions and uncertainties. You have to address them and can't just ignore it. When someone feels threatened, they become less productive. You can't then say: Don't stress, don't panic! You need to continuously reconfirm the end goal of the finance transformation and the fact that we need their contribution and involvement to accomplish and craft that transformation."
In a large organisation it is not possible for a leader to have personal, psychological chats to each and every employee, but Walter works around that by consistently setting the tone through conversations and engagements.
"We all know companies have corridor talk. If you can have people talk positively, instead of negatively or in a threatened fashion, that can spread your message very effectively. You can't have personal interactions every day, but if others buy into your journey and start talking about it, they become change agents. It is not an approach I have developed on my own. I am part of a fantastic management team and, in many instance, I have learned from them."
Besides this, ABI's finance team - up until two levels below Walter - also took some drastically practical steps to improve and travelled to bottling operations in Norway, India, Australia, US and Mexico. "I should confess that as a Coca-Cola bottler we have the advantage that we can use a global network of similar, non-competitive businesses - we are related to them. We benchmarked, picked up good learnings, looked at their shared services centres and sometimes even completely copy-pasted successful ways of working. There was no need for us to reinvent the wheel for all our changes."
Walter says he is a CFO who rather contacts his peers, through CFO South Africa events or LinkedIn, than using external advisors or consultants. The field visits connect strongly to his belief in continuous improvement. "If you don't leave your office, you are not going to be exposed to a better alternative. We thought our call centre was pretty good, but when you see alternatives, then the blinkers start falling off. It is one very easy thing that anyone can do."
Sometimes, though, the CFO simply needs to be the bearer - or even driver - of bad news. "One of the toughest decisions I was part of, was retrenching 400 people in 2014 in our business operations. While most were voluntary, between 40 and 50 were involuntarily. I initiated a discussion through asking a very simple question, which while it was right, was hard. For many years, we had told our people we would not retrench while we were making massive productivity improvements and brought our facilities down to five from 23."
While more than a 1,000 people were redeployed during this period, including finance people, Walter says there were "still 400 people too many in 2014". Then the economy slowed and the price of raw materials like sugar increased, seeing ABI's profit plummet.
"You can't just be nice, so we offered voluntary exit, even though we had told people: 'Work with us, your job is safe. We will look after you'. We made it lucrative. Forced retrenchment would have cost us R40 million less, if we had based it on 'last in, first out'. But we opted for voluntary retrenchment, with many older folk putting their hands up. It was the right thing to do."
He continues: "The impact on the workforce was actually positive. After that, ABI didn't have people lurking around without having work to do. We even had farewell parties. But our top 150 people got no increase in 2014 while we were retrenching. It was an important signal from our side."
ABI's reorganisation was massive, with a complete re-engineering of the supply chain to follow demand. "Now we can take our product from a manufacturing warehouse to the customer in 24 hours. The key was building more manufacturing capacity and shortening our production runs. This made it possible to keep much lower stock levels and better fulfil demand. Today, for example, we carry about five to six days of stock. That used to be about 20 days. And on our biggest and fastest-moving items, we carry less than one day's stock. We now have a third of the stock we had six years ago - and our customer service is better. We produce what we need for tomorrow - for ABI that was about 15 million cases per month last year."
Walter's victory in the Compliance & Governance category has made him "smile many times", he says, referring to some of the legacy procedures and systems he is dealing with after the bottling merger in July 2016. Without publicly quantifying what he encountered at a merger partner, Walter does count himself lucky that he has seen "what good looks like". And good, once again, comes from an integrated approach. "The one thing that I have to say about the recognition for our excellent governance, is that it is something that runs through the whole business. And it has to. There is not just one person who is accountable for it, each person has a role. Governance is not just about a sequence of events - it's a state of mind."
A great example of ABI's integrated approach was its five-step compliance programme, in which all controls are documented and have a control owner. The first step is a manager self-test. The second step is an employee from finance who checks the controls, while also doing 'blitz audits'. We are continuously modifying controls as they get outdated - they have to be relevant. The third step is a monthly SOX state of readiness test, related to the compliance regulations for US-listed companies. The fourth step is internal audit, including routine testing. And the fifth step is external audit. "The audit committee gets a report with detailed information on all steps", says Walter.
Monthly reporting is done in the speediest way thinkable. "ABI used to close its books on the 31st of March and we would have our financials at the end of the day on the 1st of April. The next working day we are entirely finished, including tax. We achieved that speed four years ago. We used to only have the numbers four days after closing. You have to change a lot of minds to accomplish that. Once again - all through great people."
Even before the merger tombola started, Walter gained valuable experience in managing an intricate web of stakeholders. Again, clarity and getting buy-in works best, he says.
"We engage, understand and confront with facts and analysis. You need to have a relationship with all stakeholders. I have a strong relationship with the board and with SAB and sometimes need to act as mediator."
Better, not perfect
With this evidence of speedy reporting, wise stakeholder management and a solid compliance programme, the award does not come as a surprise. Walter also likes to send his managers on CPD training and he is continuously trying to promote a culture of continuous improvement in governance and compliance as well.
Pictured below: Walter and Viktor Sekese of SizweNtsalubaGobodo
"Continuous improvement is a slogan we are using a lot in our business. Maybe you are not making it perfect, but are you making it better? You get to a stage where the majority of the organisation understands this. What sometimes muddies the waters is when urgencies become so pressing that you become a bit blinded and want to take a shortcut. Those are times when you are not the nice guy. Running a business is not a popularity contest. Sometimes you need to make a controversial statement or hold the mirror up: what are we doing here? Can it be all over the Sunday newspapers?
A good CFO, Walter assures, needs to be flexible, a word often eschewed by bookish accountants. "You need to strike a balance between being a rigid, hard-assed guy who does what needs to be done and being flexible about the way things get done. Sometimes things can get done differently for the sake of a greater objective and as a CFO it is your role to not let nuisance rules get in the way of speed. At ABI, we invested hundreds of millions of rand and invested in competitive pricing. As a FD, I could have said: I need endless analysis, I need absolute certainty. The other option is to acknowledge that growing a business is not a precise science. If you want a perfect situation before you start moving, you will never move on anything."
After such a long career, could Walter apply his skills and experience elsewhere, as a CFO in a completely different industry? He is quick to say that he is very happy in his job. Maybe someday he may be open for alternatives. As the cliché goes, communications is key. "A good CFO starts with engagement. You have to be able to engage upwards to shareholders, the board and your fellow directors. But to play the role of leader, you also have to be engaged and inspiring for people that work with you. I am calm and caring, with a fairly good EQ. I think things through and I am fairly predictable. I empower so people can make their own decisions. There needs to be clarity about what 'good' looks like and for that, you first need clarity in your own mind. In the end, you only get results through people."