Memo from the CFO: Dealing with High-Tech Realities.

With 25 years of experience of continually increasing financial responsibilities with technology and e-commerce companies, Siebel Systems Inc. CFO Kenneth Goldman talks about assessing technology investments, the CFO's role at high-tech firms and dealing with today's financial realities.

MEASURING UP

Recommended metrics for assessing the value of software.

In today's difficult economic environment, there is pressure for solutions that deliver a quick return on investment, particularly for front-office or products that increase revenue and touch customers. The metrics we [at Siebel] think customers should use include tools like ROI measurements that look at: increasing revenue; decreasing costs; increasing customer lifetime value; decreasing customer acquisition costs; creating competitive advantage, loyalty and customer satisfaction. Basically, a CFO should look for increases in three metrics: revenue growth, customer satisfaction and employee productivity.

THE ROLE OF FINANCE

The CFO function in a high-tech, fast-growth company.

In general, in technology companies, finance plays a key role in partnering with the management team to help the company develop, fashion and execute its strategy. While the corporate controller is involved in insuring the accuracy and timeliness of the numbers, the CFO role is of significant strategic importance.

The finance function should be cognizant of what's going on around the world and use information from the competitive and customer landscapes to paint a picture of how the environment may or may not affect the company. The finance function is instrumental in putting together the budgeting -- and I refer to budgeting in a way that helps find business opportunities you would not find otherwise.

Also, finance's role is to suggest means to improve operating earnings and to increase revenue; the finance function also works to spot business risks that may develop and reduce or offset those. Obviously, I believe finance itself has become a preeminent function and, as such, is as important as the more visible functions of development and marketing. Bottom line: as a function, finance is the glue that pulls it all together.

WHEN THE GOING GETS TOUGH

Economic downturn and stock market swings.

Ultimately the stock follows the performance of the company -- the stock does not drive the performance of the company. In an economic downturn -- even more so than during other times -- you need to focus on achieving organizational goals related to customer satisfaction, revenue and operations. It's also a time to scrutinize internal projects and objectives to be sure you have competitive products and cost structures and that you have the best way to deliver revenue. Also extremely important is a need to focus on bringing out new products.

Extensive survey results show increasing customer satisfaction does increase market capitalization. For example, data from a University of Michigan survey indicates a 1 per cent increase in customer satisfaction translates into a 3 per cent increase in market cap, and those percentages are consistent across a variety of industries and companies.

You can't be preoccupied with the stock price. You need to be preoccupied with driving your company by improving customer satisfaction and making sure you're even more competitive in terms of cost structure -- recognizing that, over time, these activities will translate into an increasing rate of profitability and, ultimately, market value.

I've found that strong companies become stronger during downturns, and when the economy does improve, [they] get much stronger - on an absolute and relative basis - than the weaker companies. This is explained by the fact that in a good environment, the rising tide lifts up all companies; in more difficult times, marginal companies don't have access to capital, emerging companies can't get started and management teams don't have the wherewithal to keep focused and committed.