Do you consider interim management as a necessary evil mandated by unplanned circumstances? If so, it’s clearly a necessary evil with verifiable ROI. Notably, it’s not typically found in your company’s business plan. Of course, you don’t hope longingly for the opportunity to hire one when you’re dreaming of the next gear you intend to take your business or investment into. Instead, it is what you do when there’s a skills gap on your core team, a sudden departure of a key executive, an otherwise competent sitting executive lacks all the requisite skills you require for execution of a revised or expanded element of your strategic plan, a business impediment is standing in the way of achieving performance KPI’s or value gains, or you have a substantive life cycle pivot in your company necessitating the need for a project CXO.
Prince Niyyar of Commdex Consulting, a critical infrastructure telecom enterprise, put it this way, “We brought in someone to lead our effort to set up an M&A competency because no one on my team, including myself, had any experience growing a business inorganically. We essentially needed a teacher and coach, but also someone who could embed themselves in the business, aid with other strategic initiatives and effectively expand the capacity of the senior management group.” The core team in this instance was able to maintain its laser-like focus on business operations. Without filling strategic gaps of this type that inevitably appear among the dynamic leadership contingent we all often dub “the C-Suite,” time-sensitive opportunities may fade.
Value extends well beyond cost considerations:
With the stage set for this construct of necessity for interim services, it’s worth highlighting that the total price tag for interim management is less costly than buyers of the services might first believe. In fact, the all-in costs can be measurably lower than a full-time executive – given the incremental expenses of bonuses, stock incentives, options, and perks – none of which are typically required for interim professionals. The additional expenses of a full-time employee also include what are sometimes underestimated costs, such as executive-level healthcare benefits, car reimbursements and payroll burden (i.e. state, federal and social security taxes). With all that said, the services rendered and their related charges are circumstantial, and the actual cost comparison is heavily dependent on many factors, including company size, industry, employer profitability and the unique circumstances of the scenario in question. In contrast, the all-in costs of an interim manager, inclusive of travel and ancillary expenses is an estimated minimum of 20% less costly than that of a long-term hire.
That’s the short-term analysis. In the longer term, the financial impact is much starker. The viewpoints of objective investors and those of key executives themselves assess the impact of a quickly implemented but carefully considered interim solution very favorably, with particular attention to whether the fit is appropriate for the situation. Scott Barfield at Bluearc Capital says it this way, “We used interim managers in a couple of critical moments in legacy platform deals because it became clear after closing that the businesses would suffer from suppressed value if we kept the founders or prior operators in place.” It is estimated that the corporate benefit is at least two times the capital invested in short-term executive level help, often significantly greater than that. Savings and value creation are equally paramount in assessing the return on investment.
Positive outcomes of hiring a temporary senior professional:
1. Preventing the loss of confidence in the financial management of the company by board members, bankers and/or investors,
2. Assuring that the quality of earnings that drives critical decision-making does not deteriorate,
3. Management of the entire fund-raising cycle from end to end, inclusive of minimizing gaps, mitigating funding costs and ensuring that timing lines up advantageously,
4. Interim managers can preclude the cost of failure of key projects in the pipeline that cannot be delayed,
5. Avoiding losses from a reduction in productivity and prioritization,
6. Forestalling or reversing lost revenue absent a lead financial strategist (e.g. attending to pricing tactics, modeling key initiatives, capital budgeting, etc.).
All of these broad categories have a dramatic impact on the bottom line for the company. Alex Mammen of Heritage Growth Capital mentioned, “When we have had the opportunity to introduce someone from a third-party standpoint, the impact was dramatic in terms of speeding up execution and more aggressively managing expenses.” During the interim period, while more challenging to document, the savings and payback from bridging the leadership gap and helping with risk avoidance through the watchful eye of an interim CFO (or interim operating executive, as the case may warrant) are significant.
The truth of the matter:
This is not to say that there aren’t other solutions that can be considered for resolving gaps in the senior ranks, and with a lower outlay of capital. Although a “do nothing” approach is reminiscent of the “hope is not a strategy” cliché, sometimes companies can leverage existing team members for project work due to a vacated spot, promote from within on an interim basis or split duties among current executives. However, this approach should be weighed carefully. There are many cautionary tales of firms that missed value creation cycles or were competitively disadvantaged as their critical personnel were distracted from other important functions or, worse yet, their overall productivity took a precipitous dive.
Interim management is not always the right solution, but given its impressive and longstanding track record of return on investment and the ability to validate its value with results in the form of completed project work, departmental efficiency, firm KPI’s and the direct cost comparison as outlined above, its utility as a key tool in the toolkit for owners, boards and investors is likely to be heavily (and happily) leveraged for many years to come.