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When cost pressures reach finance departments, small improvements go a long way.
Nelson Wang, CFO Magazine
February 1, 2009
With recession starting to slice into sales of his firm's flagship software suite, Adobe Systems CFO Mark Garrett looked for ways to cut costs. In the end, Adobe trimmed capital investment, combined departments, and reluctantly laid off about 600 employees, around 8 percent of its workforce. No department was spared, including finance.
Garrett proceeded with extreme caution. No amount of savings would match the penalties for a slip in accounting procedures. Amid companywide efforts to stretch resources, an errant bit of financial data could spell big problems. "It's very difficult to stop doing things in finance," says Garrett. "There are certain things we just have to do to run the business from a compliance standpoint."
In crisis lies opportunity, says Mark Schmeling, the CFO Advisory Services practice leader at Archstone Consulting. This is a good time to identify inconsistencies, bolster weak controls, and maybe even jettison superfluous activities. For the most part, however, improving operations within finance will be an exercise in fine-tuning rather than a matter of discovering huge savings opportunities. These days it's a rare department that has much fat to cut. What follows are several concrete steps that companies have taken to meet the ever-popular and recently reemphasized goal of doing more with less.
In their quest for greater efficiency, more finance departments are looking to rationalize their use of shared-service centers. Payroll, T&E, accounts payable, and other basic services have long been centralized or consolidated in some form. Some companies are now preparing to move a wider range of accounting and finance functions under fewer and more-centralized roofs.
Until last year, Adobe handled most accounting and finance support in 11 global offices. "That just wasn't the most efficient way to do it — it wasn't as scalable as it needed to be," says Garrett. So the company consolidated payable processing, general ledger, and statutory accounting in three regional service centers. A location in the United States handles North and South America; Dublin handles Europe, the Middle East, and Africa; and Singapore now supports Asia and Australia.
Trimming the number of service centers forced Garrett to scrutinize the way Adobe manages finance and accounting. He found ways to standardize the monthly account-reconciliation process, streamline month-end accounting and accruals, and tighten standards on expense-account approvals.
Adobe's efforts are aimed chiefly at holding down costs as the company grows. That benefit is material, says Garrett, but hard to calculate. A more efficient finance department also sends a vital signal to other areas of the company that everyone must rethink the way business gets done.
Wider use of shared services can trim finance-department costs by as much as 15 to 30 percent, says Stephen Lis, who heads KPMG's Business Performance Services practice. But the degree to which savings can be achieved depends upon the degree to which shared services have already been applied.
In 2008, executives at Duraflame reduced the company's staff and trimmed its administrative costs by an undisclosed "double-digit" percentage. "There was no silver bullet, no single thing that was particularly significant," says CFO Matt Connors. "But the sum of all of [the changes] had an impact."
The staff reduction shed light on one area of inefficiency: manual rekeying of data to produce essential reports. The company made a modest investment in a more automated approach, and now the new system generates a wider range of reports automatically while providing rich details on profitability and aging accounts receivables and, eventually, customer profitability.
Financial pressure has supplied a motive to accelerate employee training. For one thing, training helps ensure that even with a smaller staff employees can cover for colleagues. Connors won't report his savings publicly, but insists that the investment in staff versatility has improved overall productivity. His confidence in workers' capacity to handle more challenges extends to every level of administration. Last year, in fact, when a pending real-estate transaction needed attention, Connors tapped a Web-savvy intern from a local college to assist with the necessary research.
Recruiting and retaining talent always hover among the top priorities at American Electric Power. As important as it is to recognize top performers, in lean times that recognition may not come in the form of cash. Since AEP decided to freeze salaries this year, CFO Holly Koeppel has had to look for opportunities to reward top performers in nonmonetary ways.
She has renewed a three-year rotation program that exposes managers to roles that foster promotions. It may not land a new car in the garage, but it signals that the company has confidence that the employee has what it takes to move up the corporate ladder. As many as five managers with supervisory titles and above will begin a rotation in 2009. They will eventually gain experience dealing with tax and auditing, planning and budgeting, and regulatory issues.
To be considered, employees nominate themselves, which is a great way to see who is and isn't motivated. Upper management then vets the nominees. "It's certainly a way to add something for our employees when we're not putting [anything extra] in their paychecks," says Koeppel, who credits a similar experience with preparing her for the CFO role. Rotation or special assignments with high visibility can provide a much-needed boost to morale, says Bryan Hall, finance practice leader, global advisory programs, at The Hackett Group.
It's a classic win-win situation. As managers rotate, the finance department builds a flexible A-team that can weather any economic climate. Koeppel routinely redeploys finance managers whenever conditions warrant. As recession set in, AEP found itself serving a growing number of residential and commercial customers unable to stay current on their energy bills. She redirected a team that had been analyzing ways for AEP to expand and focused them instead on evaluating the recession's effect on customers. She also found that her staff had the skills to replace outside consultants. Result: Koeppel met the goal of keeping the group's budget flat in 2008.
Finance departments have been running lean and mean for some time. In fact, with the exception of a modest bump in the wake of Sarbanes-Oxley, Hackett says that the typical finance department has consistently consumed a smaller percentage of revenue — currently 0.6 percent among the most efficient, and 1.2 percent at a typical company. Therefore, modest improvements represent a real achievement, which is something to keep in mind as you ready your own scalpel.
Nelson Wang is a New York—based freelance writer.