For complex, multinational companies that have expanded through mergers and acquisitions like Johnson Controls, which operates in more than 95 countries, hurdles include connecting business functions and doing so over a vast geographic footprint, said Michael Wysong, a Vice President, Enterprise Transformation, and Global Financial Operations & Cash Management Officer at JCI. But JCI, which experienced a free cash flow (FCF) decline in 2017, successfully turned its cash position around after defining the goals and benefits of focusing on a cash culture.
“It’s about the art of the possible, about peeling back the onion for the cash you can extract at the SKU level, the product bar code, converting inventory to cash and not offsetting it with payables,” said Wysong.
Expand the cash mindset
JCI created a cash leadership office (CLO), which managed cash initiatives and integrated efforts across its organization. The process began with expanding the cash mindset among operational leaders and then implementing targeted initiatives across Procure-to-Pay, Order-to-Cash and Forecast-to-Fulfill operations to improve FCF. The system-wide mantra for all employees: every time you make a decision, how does it impact cash? The method at JCI was holistic, with executive-level, operational and tactical approaches that employed cash management and working capital metrics. The result is sustainably improved liquidity and cash management practices.
JCI comprehensively addressed working capital headwinds. But a third of the participants in our recent webcast said that they preferred a “functional organization focus” on cash and working capital centered on the finance department. And one-quarter of the participants said that spot improvement projects that focused on key problem areas were sufficient.
“Big bang or staggered, it is a team sport. Everyone has to be involved,” Wysong said.
When it comes to expanding an effective cash program, those we surveyed in our recent webcast were divided:
- More than a third said that they would use standardized processes and tools across the globe and regionally.
- More than a quarter said that they would employ the CFO and finance department in a top-down approach, but an equal number said that they preferred a bottom-up approach with cash-focused initiatives.
- Only 9% said that the C-suite should set cash targets. Wysong said that he would choose all of these options.
Initially, “processes, tools and policies come with a standardized approach, then bottom-up cash-focused initiatives result in six to seven months. And the C-suite has to set cash targets,” Wysong said. JCI steering team meetings with CFO and CEO participation sent a message, and everyone came prepared.