InfoOctober 12, 2015 · Financial
What the Greek Financial Crisis can Teach U.S. Businesses about Finance
The financial crisis in Greece can teach U.S. businesses some valuable lessons about how to handle their own corporate finances.Press Release VideoLoading the player...Details(prREACH)
A story that has secured nearly a permanent fixture in the worldwide headlines over the past five years has been the Greek government’s debt crisis. There were a multitude of causes for this modern Greek tragedy, as well as many lessons learned on a governmental level. However, private enterprise in the United States can also use Greece’s mistakes as teaching points in how to steward a company’s finances.
One thing that contributed to the instability of the country’s economics is that there were structural defects in the way the government was organized; they were promising more services than they had the budget to provide. In today’s business, oftentimes, sales and operations business areas are at odds with what can be provided. A sales division needs to be in alignment with the operational budget on what product or service can immediately be provided, and the two groups have to keep open communication between them.
Mark Hladky, a Finance Executive with over 15 years of experience managing budgets of up to $12.9 billion, recommends putting in place a communication structure between Finance, Business Development and Operations to ensure that an open dialog is constant, and not just done on a monthly or quarterly basis.
Hladky adds, “The lack of communication between these areas can quickly result in a misalignment of priorities for each business area. This results in a misallocation of resources to the address the most pressing demands in alignment of the company’s mission or strategic vision.” This could result in a company being very good at doing the wrong things. For instance, an enterprise could be so good at cutting costs that their employees leave and they drive away their customer base.
Another cause that contributed to the current state of the Greek economy occurred when the global financial crisis hit in 2009. Greece hit the world with a big surprise, divulging that they had misrepresented their level of debt ever since they applied for membership of the Euro ten years earlier, greatly understating it by up to half of the actual deficit. The lack of statistical credibility made it impossible to predict GDP growth accurately. “For U.S. businesses,” Hladky states, “this drives home how critical it is to be able to trust the Finance staff to present an accurate financial picture, no matter the size of the annual revenue. "
“There are so many ways to present an overall financial picture of an organization, depending on how the numbers are crunched,” Hladky says. “But to present a fundamentally flawed picture of an organization, just to satisfy board members, the executive team or the shareholders for the short term, they are greatly increasing the probability of the long term failure of the business.” Enron is a classic example of this principle.
Another crucial aspect to Greece’s situation that ties directly to the way we run businesses is their use of outdated or flawed technology to define their financial status. “This is a big element that some companies minimize,” Mark Hladky says.
He recommends investing in the best and most up to date financial technology for the size and complexity of the business. This doesn’t necessarily mean the most expensive suite of products out there, but the most cost effective that is essential to running the finance end of an organization. This includes not only Finance hardware and software, but the Finance team as well. “Human capital management, when it comes to allocating the best resources, is often overlooked,” Hladky warns.
He continues, “Companies want the best ROI out of their technology investment, but they don’t consider the ROI they receive from investing in the best talent for their financial team as well.”
Hladky ends with this piece of advice: “Almost every challenge is, in effect, a resource allocation challenge. How to allocate a company’s resources, which can include not only technology, but people, other capital, and even time, to achieve the organization’s goals should be at the heart of a strategic and tactical business plan. Without an accurate financial picture of the company, it just can’t be accomplished.”
The debt crisis in Greece resulted from a perfect storm of low GDP growth rates, government deficits, and the lack of budget compliance and statistical credibility. Businesses in the United States and abroad can learn from these many mistakes to ensure they accomplish the finance fundamentals as they position their companies for growth in the future.
Mark Hladky is currently searching for a great company in the San Francisco Bay Area in which to use his Finance expertise full time. To contact Mark, email him at [email protected]LinksQuotes“Almost every challenge is, in effect, a resource allocation challenge. How to allocate a company’s resources, which can include not only technology, but people, other capital, and even time, to achieve the organization’s goals should be at the heart of a strategic and tactical business plan. Without an accurate financial picture of the company, it' just can't be accomplished.”Contact
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