The 80/20 CFO: Ysmael Baysa focuses on the few things that matter

Ysmael Baysa gets his best ideas after emerging from the shower room.

By Anthony O. Alcantara

If you have a hundred ideas for great products to sell, expect Ysmael Baysa to tell you to throw out 80 of them so you can concentrate on the 20 that look more like cows — cash cows, that is.

Baysa, who is the 2011 ING-FINEX CFO of the Year, believes in the 80 / 20 principle. He believes that you get 80 percent of the results from only 20 percent of the causes. You get only 80 percent of the revenues from only 20 percent of your products. The ratios are not fixed, of course. But the basic idea is that there is an inherent imbalance in most things.

As the CFO of Jollibee Foods Corporation, Baysa crunches a lot of numbers. Sometimes these numbers get so huge and act so strangely that Jollibee’s management calls on him for his interpretations and vatic pronouncements.

The 80/20 principle can help manage the complexity, according to Baysa. It’s relevant to the concept of strategic thinking that he believes has been overused by many.

“We have a simple rule,” he said. “If you are not making hard choices, you are actually not making a strategic choice. It’s always very, very difficult to decide what you are going to do, and what you are not going to do.”

“In budgeting, we say we’re going to do 20 things. In strategy, we’re going to do only two things very well. In strategy, less is better, but we have to do them very well.”

Tough decisions

The tough questions also involve decisions such as whether or not Jollibee should enter or exit a certain country, or a certain business.

Recently, the company sold Manong Pepe shortly after it had acquired Mang Inasal. It was a difficult decision, most especially since some fought tooth and nail to retain the brand. Facts and the application of strategic thinking eventually won.

It’s probably because of this faith in the 80/20 principle that Baysa does not schedule meetings with his staff.

“Actually, they are the ones who call me because they know what the priorities are, what the projects are,” he said in his deliberate and contemplative way. “They don’t involve me unless there are some decisions that need to be done.”

Big picture

Obviously, Baysa is not the controlling type. He’s much into broad picture thinking, more on the strategy side.

“It’s really the 80/20 rule, so you know that 20 percent of the items control 80 percent of the risk in terms of value. And that is what you think about,” he said.

“I’m more interested in knowing what will likely happen nine months from now. Will it hit us? How can we prepare the company? I look at economic and political news about China. What does that mean to us?”

Despite the unfeeling numbers and the serious analysis, he often bursts with good-natured laughter.

Why rather than how

When Baysa was young, he wanted to be an architect or a journalist. He was an associate editor of his high school paper after all. But being an orphan and with little means for sending himself to school, he decided to take up a course that could be useful and practical for business. So he took up accounting.

“I enjoyed it in a different way,” he said. “I was not enjoying all the additions. I was enjoying the theory. It’s not the math, but the theory. Why are numbers treated that way? Why five years for depreciation? Why 10 years? I think I asked the why rather than the how.”

Baysa’s interest in accounting theory, combined with his keen appreciation of history and economics, has led him to formulate his own definition of finance.

“It is economics used in the corporate world,” he said. “It’s a microcosm of economics.”

News junkie

Unsurprisingly, the first order of the day for him is to read the news.

“What does it mean to me in my work? What does it mean to Jollibee? Our future? I think one of my unique talents is to be so interested in the very broad picture: politics, economics at the level of accounting translated into financial analysis.”

His typical day starts at 5:30 am or 6 am. He drinks his coffee, says his prayers and meditates. He spends a lot of time in silence. Afterwards, he takes a shower. And just like Archimedes jumping out of his bath tub shouting “Eureka!”, Baysa comes out of the shower overflowing with ideas.

“Many of them are fresh ideas,” said Baysa. “I would say that most of the creative ideas and decisions have been done even before I reach the office.”

Two qualities

For Baysa, there are two qualities that a CFO must have: the mindset of a businessman, and the ability to see the big picture.

Many probably know this already, but few appreciate their importance, according to Baysa, who laments the abundance of financial analysis without context.

People’s understanding of inflation is one example. For most companies, it doesn’t mean only higher costs. It also means lower sales volume because people are less likely to open their wallets. It’s a double whammy that will only be apparent to those who see the bigger picture.

Of course, there are other tougher problems that CFOs would be better able to deal with, if they truly have a businessman mindset and big-picture thinking skills.

Advice to CFAs

Asked about his advice to CFA charter holders and candidates today, Baysa only has two words: intellectual honesty.

“You can have all the data and the numbers in the world but the financial analysts and even accountants have the capability to muddle the numbers, to manipulate the numbers. For example, in valuating a business, increasing the annual growth rate by 0.5 percent can make a huge difference,” he said.

“These things are most important in making big decisions. The real good decisions are tough decisions. But without intellectual honesty, bad projections are made to look good.”

A lot of it is based on judgment. For Baysa, there are two kinds of intellectually dishonest people: those who are dishonest and are aware of it, and those who are dishonest but are clueless about their dishonesty.

CFA Society of thePhilippines, which is one of the co-presenters of the CFO of the Year Award, is certainly not clueless. And yet, the danger is still there.

“It’s very important to be very conscious,” said Baysa. “You have to ask yourself, ‘Do I really believe this?’ Otherwise you will become used to it, and soon you will have become a big liar. In the end the truth will come out. It does take a lot of courage to be intellectually honest.”

That, in a nutshell, is Baysa’s distilled 80/20 wisdom.

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(This story also appeared in the 2011 issue of Mind Swap, the newsletter of CFA Philippines. Posted here with permission.)

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