Cash is king, so work your working capital

Eduardo Petracca & Asoc.
management consulting
Cash is king, so work your working capital
INSEAD Business School - Case Study
con análisis y comentarios de Eduardo J. A. Petracca
Publicado en el Management Herald (marzo-abril 2010)
With credit so hard to get during this recession, the old adage that “cash is king” is even more relevant.
But most companies have access to more cash than they realise, say two INSEAD professors, and it’s
right in front of them, in their company balance sheets.
Kevin Kaiser and S. David Young surveyed many companies for their recent Harvard Business
Review article and found that the traditional business focus on the bottom line actually ties up
working capital, setting managers on a death march towards bankruptcy. They have come up with a
six-part strategy to squeeze more funds from business balance sheets.
1. Don’t manage to the bottom line
“If you focus solely on the bottom line you mismanage your working capital, and you could have way
too much money tied up in inventories or receivables,” says Kaiser, Affiliate Professor of Finance at
INSEAD. “A supplier may lower his price to convince you to buy larger quantities than you need, but
that means you have cash tied up in inventories. And the cost of financing those inventories will
certainly erode your profit margins.”
“It’s a trade-off,” adds Young, INSEAD Professor of Accounting and Control. “You have to compare
the benefits of acquiring large quantities of goods at a lower cost with the cost of having to carry and
finance inventories. You can also try to shorten the time you’re carrying receivables,” he says. “You
can call your customers close to their payment-due date and remind them.
Isn’t this perilously close to harassment? “Well, of course you have to use finesse,” he told INSEAD
Knowledge. “It’s an opportunity to stay close to your customers, to find out how they’re doing, maybe
discuss pricing, and actually help them to meet their goals.”
2. Don’t reward staff for growth alone
Young and Kaiser urge companies to veer away from the singular profit-as-incentive strategy to
galvanise employees to meet goals, and instead get them to change their focus and look at the whole
balance sheet, which is a pretty tough change for the traditional sales force, whose compensation plans
are linked to unit- or dollar-sales generated, not on cost controls and saving working capital.
“There’s more to selling than making the deal,” Kaiser and Young contend, proposing
that sales forces reconsider extended payment terms that sometimes function as rebates
in disguise, and to assist generally in managing customer payments, including, in some
cases, pay-on-delivery terms.
This, they admit, may drive away some customers, but the compensation in shortened payments can
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more than make up the loss.
3. Make sure customers will pay for quality
Putting too much time and resources into quality is another drawdown on working capital. “We’re in
favour of quality,” says Young, “but we should never forget that the customer has to pay for it. It could
be that the customer doesn’t want it and doesn’t want to pay for it. In that case, you’re burdening
yourself with extra cost, extending your cycle time in the factory, and taking on huge amounts of workin-process inventory and the customer just doesn’t see it.”
“There is a tendency for people who love what they’re doing to lose a little focus,” adds Kaiser. “We
looked at an Italian food company that had a product they advertised as having been aged for a year.
This was a quality factor for them. But they did some research and found the customer couldn’t really
tell the difference and didn’t want to pay for it.”
4. De-couple receivables from payables
Then there’s the relationship between receivables and payables: what you order and pay for from your
suppliers, and what you can then charge your customers. To manage through the economic crisis
successfully, one should not be tied to the other. Your supplier may be providing you with something
you need to get your product out, whereas your customers may be able to buy your goods and services
elsewhere. It’s all about leverage and buying power.
The US car industry is a good example. “It’s in the nature of suppliers to go bankrupt before the car
companies,” says Kaiser. “Suppliers couldn’t wait, while the car companies pushed their pricing
pressure (from industry competition and lower sales) on to their suppliers.”
“Meanwhile, GM goes bankrupt because its customers don’t want to pay for the extras in their (GM’s)
product.”
5. Beware of benchmarking
Everyone needs a yardstick, but during the recent fast-paced bubble years, too many companies used a
simple set of metrics to calculate their performance. This, say Kaiser and Young, was not enough then
and certainly isn’t enough today. Benchmarking can in fact be dangerous because it can convince a
company it’s doing fine when another firm out there is doing better and walking away with the prize.
“These benchmarking metrics are indicators of performance, mid-average paragons, and they can put
companies in a straight jacket,” claims Young. “Focusing on benchmarking can make you miss
opportunities that come from an intimate knowledge of your value chain. GM and the US car industry
got trapped in benchmarking. Toyota didn’t. Early on, they didn’t have the luxury of anyone to
compare themselves to, so they created a programme of ‘continuous improvement’ in which they selfbenchmarked, getting better every year based on their own metrics, and eventually blew away the
competition.”
6. Beware current and quick ratios
This is what bankers use to determine your creditworthiness: a shorthand worst-case scenario
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predicting the future of companies looking for financing, to show what lenders can reclaim if the
company defaults.
“Bankers like to see a high ratio of assets to liabilities, and that means high inventories and receivables
and a low level of debt, so they know what they can sell off after you’ve gone under,” says Kaiser.
“We call this the ‘death scenario,’” says Young. “You have a payment coming due
in 30 days and you pay it off in 10; you give customers more time to pay and buy
huge inventories cheaper. If you actually manage to these ratios, you increase the
likelihood that you will fail.”
Kaiser and Young admit that adhering to these six suggestions will require a
significant shift in corporate thinking and even in compensation. But they say that, in today’s economy,
corporate survival depends on creative thinking and teamwork.
“Line-of-sight indicators as the basis for compensation no longer work,” says Young. “Profit-sharing is
a better method.”
“Targets are necessary,” says Kaiser, “but they shouldn’t be used as the only basis for reward, because
they create negative behavior” that can be detrimental to overall management. “Companies have to
adjust, to learn. If they can’t learn, they’re going to die.”
Análisis y Comentarios sobre el Caso
(por Eduardo J. A. Petracca)
Luego de la profunda crisis financiera global que comenzó a mostrar toda su furia en el último
trimestre del 2008 y atento al nivel de tasas de interés de nuestro país, incluyendo el reciente
conflicto por las reservas del BCRA, no coincidir con la afirmación “Cash is King”, sería un
insulto al sentido común.
Pero no todo es absoluto.
Los autores presentan una estrategia de 6 componentes para obtener más fondos de los
negocios, ejemplificando algunos de sus puntos de vista.
Recargar los inventarios tentados por jugosos descuentos que ofrecen los proveedores, puede
ser una buena o una mala decisión, depende del costo de oportunidad, que no sólo es
financiero (el descuento logrado vs. la tasa de costo de capital).
Un inventario extenso tiene la desventaja de inmovilizar capital, pero también la ventaja de
poder ofrecer una variedad de productos que cubran las necesidades de los diferentes
segmentos de clientes. Esto no es una cuestión caprichosa o meramente financiera, sino una
cuestión de la estrategia del negocio (p.ej. la variedad del hipermercado vs. la compresión de
surtido de un local de discount).
Del mismo modo, por más atractiva que sea la tasa de descuento que nos ofrece el proveedor,
se debe estar muy seguro que finalmente resultará más conveniente sobrecargarse de
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inventarios de alta tecnología cuyo ciclo de obsolecencia puede estar en solo 6 meses (p.ej.
celulares).
El tema de tiempos de pago y cobros, alargando unos y acortando otros, tampoco es solo una
cuestión financiera, sino que debe ser visto también a la luz de lo comercial. El crédito largo
otorgado al cliente, siempre es un impulsor de la venta. Que mejor ejemplo que el crecimiento
de las ventas de electrodomésticos que se logró con los planes 12 cuotas con tarjeta. Hubiese
sido suicida salir a cortar plazos en un mercado que extiende cuotas.
Un tema muy interesante que plantean los autores, es la necesidad de estar seguros que el
cliente está dispuesto a pagar por la calidad de lo que se ofrece, a lo que agrego que al analizar
el tema (la verdadera caliadad genera altísimos costos) deben tenerse presente dos cuestiones
clave: ¿Cuál es el nivel de calidad que valora el target al que apuntamos? (que demanda y que
está dispuesto a pagar por ello); ¿ Cual es el nivel de calidad que se percibe? (quizás el
atributo de calidad existe, pero no se lo detecta).
Es interesante también el comentario de los autores con respecto al corsé que los indicadores
de benchmarking pueden imponer a las empresas, para que logren indicadores, al menos en el
promedio.
El benchmarking es bueno, pero si se lo utiliza con profundidad de análisis y visión de
conjunto, pues dado que generalmente se lo efectúa entre empresas de un mismo sector, el
efecto volumen (escala) distorsiona los promedios y por sobre todo, debe tenerse en mente las
diferentes estrategias competitivas (no es lo mismo desarrollar una estrategia de precio-costo
que otra de extrema diferenciación).
Resumiendo, las ideas presentadas son interesantes, pero a mi entender un tanto sesgadas a lo
financiero, en detrimento de elementos clave a la hora de tomar decisiones, como son el
Cliente y los Competidores.
La administración del capital de trabajo, es una gestión delicada, donde no solo siempre se
esconde un fino análisis de costos de oportunidad que indudablemente impacta en la tasa de
rendimiento de la empresa y por ende en el valor de la misma, sino que también incluye
aspectos competitivos.
Por ello, si bien el “Cash is King”, el Cliente también lo sigue siendo.
Hoy más que nunca la visión sistémica debe estar presente en todas las decisiones
empresarias.
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