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The Human Element
With the right mix of planning, persuasion, and browbeating, many CFOs will manage to consolidate finance processes. But the real question is whether they can deliver on the ultimate promise of consolidation: that transactions will become so routine that finance can devote more effort to helping managers ponder business decisions.
"If you centralize finance activities and manage only to cut costs, then I think you are missing the bigger part of the opportunity — to provide support for growth," comments Rich de Moll, vice president of finance transformation for Capgemini U.S. LLC.
Making that happen means clearing several hurdles. One is providing the technology that gives analysts easy access to all of the data generated by the shared-services operations. Several years ago, Dow moved all of its 450 business entities onto a single ERP system and added performance-management software to let local finance employees troll through the data on their own. "Since we use one database, you get the same answer no matter where you're looking from," comments Brod.
Technology alone isn't enough, of course; think of the expensive ERP implementations of the 1990s that failed to make businesses more effective. "A lot of people say, 'We're going to spend more on data,'" says Kurt Reisenberg, executive director of the CFO Executive Board. "But what their business units really need is good business advice and insight into the data — and that requires the human element."
Unfortunately, finance departments often don't have the people with the right skills. CFOs who have built strong decision-support operations have needed to hire new employees. This was true for Cisco Systems Inc. "Without the right people, finance transformation is just not going to happen," says Dennis Powell, CFO of the San Jose, California-based networking giant. "As you look at people, you need to ask, 'Can they think strategically? Can they work across functional boundaries? And do they have the intellectual curiosity that will drive them to learn as much as possible about the business?'"
To foster a closer bond between finance and the business, Powell has established a program to rotate finance employees throughout different parts of the company. In the past year alone, 30 percent of the finance department spent time working in other roles. "Some of them return to finance and some stay in operations," says Powell. "Either way is OK with us. It means we have very financially astute people working in the business as well." (See "Decision Support at Cisco" at the end of this article.)
Once finance has the right people, the CFO must be committed to placing some of the best ones in the business units. "One way for centralization to go wrong is to take all of the good decision makers and put them in an insular bureaucracy," says Frank Galioto, a vice president at Booz Allen Hamilton. "What you want is to have the more senior people close to the business and the more basic stuff in shared services."
Finally, companies need the right reporting relationships for finance. Sarbox has brought a general tightening of the bond between business-unit finance operations and the CFO, says Alvarez & Marsal's Moran. "CFOs want their business finance employees to feel more pressure to report what's happening in the business up to the finance organization." The danger is that this may undermine the close relationship between operational heads and their finance teams.
But the shift to solid lines will probably be short-lived. Ron Foster, formerly CFO of JDS Uniphase and Novell and now CFO of FormFactor Inc., a Livermore, California-based technology company, argues that as compliance becomes routine, the link between local and central finance will naturally revert to a weaker form. "I've found that in companies with more-mature finance processes, you don't need the solid line to the CFO," says Foster. "As the financial controls of Section 404 become embedded in operational controls, you can let operations own the relationship to business finance."
Indeed, if long-running finance department transformations work as planned, then centralization will be just a detour on the way to more-dispersed, entrepreneurial companies. "We're seeing a sea change in how businesses will be organized," comments Malone of MIT. "In the short term, you will see backs and forths because of factors like Sarbanes-Oxley. But those are like waves across the surface of the ocean. The move to decentralization is like the changing tide."
The CFO's challenge is to move with the tide — without letting finance operations drift out to sea.
Don Durfee is research editor at CFO.
Kill Your Shared-Services Centers?
"Any company trying to consolidate finance today is wasting its time." The words of a disgruntled operations executive? Hardly: that remark comes from Greg Hackett, a management consultant whose pioneering benchmark studies of the finance function helped launch the shared-services movement in the 1990s.
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