Bob Murphy, VP & CFO of BAE Systems, Inc.
July 10th, 2008 by JD Kathuria
What does it take to be a successful CFO in today’s marketplace? Bob Murphy knows all about it. As senior vice president and chief financial officer of BAE Systems, Inc., Murphy helped this global aerospace and defense company generate about $15 billion in sales in 2007. And he expects to see even more growth this year. In the following Q&A, Murphy shares his vision for the months ahead, and what he sees as one of a CFO’s most valuable assets: flexibility.
ExecutiveBiz: Tell us what your role is at BAE Systems.
Bob Murphy: I am the senior vice president of finance and chief financial officer of BAE Systems Inc., which is the headquarters for the U.S.-led businesses of BAE Systems plc, which is headquartered in London. BAE Systems Inc. generated sales of just under $15 billion in 2007, which accounts for about half of the overall revenue and profit of the company. We expect to see significant growth again in 2008.
ExecutiveBiz: How would you describe your top goals for this year?
Bob Murphy: Top goals for 2008 are centered on three major thrusts: growth, the broad area of ethics and governance and development of our people. Our role in the portfolio of BAE Systems plc has historically been about generating profitable growth and that role continues as we expect to see further strong organic growth in 2008 and growth through acquisition. In the area of ethics and governance, including compliance and controllership, we continue to strive to improve upon our strong track record in this area and to meet the ever increasing demands of regulatory agencies consistent with our phenomenal growth and the expectations of our customers. Our overall goal here is to not only be compliant but to be exceptional in this area so we are focusing and resourcing this to continuously improve and be successful. Finally in the area of people, it is very important that we have strong leadership in the future so we are spending a great deal of time and resources developing leaders in the business who can meet tomorrow’s challenges.
ExecutiveBiz: How would you describe the role of the CFO in acquisitions?
Bob Murphy: The CFO plays a strong leadership role in a number of dimensions. The CFO has an important role to play in determining if a potential acquisition makes strategic sense not just for the company but also for our customers and the industry. Secondly, the CFO obviously plays a very important role ensuring that the numbers work, meaning that we have run a thorough valuation and due diligence effort so we understand the business and the potential outcomes we can expect. Out of this the CFO plays a key role recommending a price for the potential business and it’s important to be disciplined about what you pay to ensure the deal creates value for shareholders. Finally it’s important to support the negotiating process and have a good understanding of the cultural fit and the integration plan to increase the certainty of the deal delivering value to all stakeholders.
To date we have been very successful in ensuring the acquisitions we have done have either met or exceeded our expectations, but this is a very risky venture and does require a lot of energy. To create value you generally need to take risks. The CFO must ensure the opportunity is objectively valued and presented to the board. However, the CFO must be willing to take risks that may feel somewhat uncomfortable to succeed in M&A. To objectively identify and understand the risks and opportunities that generate this discomfort, the CFO needs to invest in both a very strong underlying M&A process and a team that is listened to, for the CFO to make sound recommendations.
ExecutiveBiz: What are some of the hot trends that you are tracking that will impact your business over the next 12 months?
Bob Murphy: Over the past three years we have worked very diligently to establish a leading global position in the Land Sector. Given that investment over the next 12 months I think one of the key things that will be important is the pace of the ongoing conflicts in Iraq and Afghanistan and the shape each of those conflicts takes as we go forward. Certainly the fielding of the MRAP vehicles has been a big deal and that will continue to be important in the near term as we focus on the execution and delivery of that very important program. Clearly we will be paying a lot of attention on the political front relative to the election and where that may take us relative to a change in emphasis in both strategy and the funding priority of programs going forward. The global economy and the U.S. economy will have an influence on the US DOD budget, so we continue to watch this unfold as well.
ExecutiveBiz: Are there any specific challenges you have being part of the North American operation part of BAE Systems?
Bob Murphy: There are always challenges but they also represent opportunities. We enjoy a terrific relationship with our parent; they have been great stewards for the business as we have grown and clearly the UK represents a very unique and strategically important ally for the U.S. Although BAE Systems Inc. is a U.S. company that is incorporated in Delaware, we are a wholly owned subsidiary of BAE Systems plc in the UK and we do function under a special security agreement and are therefore treated like any other U.S. company in the states. Being part of a truly global company provides the ability to have a more global perspective than many companies in our industry that by their nature tend to be U.S.-centric because that is where they principally operate.
The ability to see a global industry landscape much the way our customers see the landscape is a great opportunity to better understand the challenges our customers face on a global scale. Although it’s more complex to integrate across a global company, it makes us better able to leverage diverse ideas, investment and technology from across the globe to rapidly field responsive solutions to our customers. The MRAP program is a great example of how a global company can make a difference, where we leveraged technology from South Africa and other parts of the world to develop and deliver a vehicle to the field in a little less than 18 months. This was a tremendous performance and the vehicle is saving lives in theater today. That’s turning a global challenge into a global opportunity.
ExecutiveBiz: What do you think it takes to be a successful CFO in today’s marketplace?
Bob Murphy: I think the emphasis continues to shift. First, I think it’s always important for the CFO to keep their eye on performance as this underpins the ability of the firm to deliver value and then have strategic options because if you can execute, you can create strategic flexibility from a financial perspective and that fuels growth. Secondly, today’s CFO needs to maintain focus on external events and make sure we see and understand not only what’s going on in our industry but also events that shape the overall landscape that could affect the diverse interests of our stakeholders, be they customers, users, shareholders, or regulators. There always needs to be a focus on people, leadership development and diversity to ensure longer term success. Finally, and perhaps most importantly to me, you have to have unimpeachable ethics and a strong set of values to be successful. So I think those are some of the basic things that underpin the strong leadership qualities that are very important for today’s CFOs.
Yes you have to do all of the hard things and the mechanical things, but I think the nature of the role continues to change. Today, with the high degree of uncertainty going forward, I think the external focus and is becoming ever more important and finally as one of my former bosses told me, blessed be the flexible for they shall not break.
ExecutiveBiz: What is something most people don’t know about you personally?
Bob Murphy: About six years ago my son got a little restless with the typical vacation activities on a vacation in the Bahamas and decided he wanted to try scuba. Well a long story short, we both ended up going to find out what scuba was all about and we both got hooked, got certified and we’ve been diving ever since. So when I need some time out of here to decompress, I find a nice place and we go off and do some diving.
ExecutiveBiz: Is there a favorite diving place that you go to?
Bob Murphy: Nope, I don’t have a favorite one. There are a lot of beautiful places to go and see. I just want to see as many of them as I can and enjoy a different part of the world.
