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MTV's explosive growth prompts a substantial financial reengineering effort, one that even the most buttoned-down companies can learn from.
Peter Krass, CFO IT
September 15, 2003
MTV, the television network built on cool, is feeling the heat.
What was once a humble cable station known for airing music videos in endless rotation is now a programming powerhouse and media juggernaut. Fueled in part by a string of acquisitions, MTV has made forays into radio, movies, books, Websites, and related businesses, and has seen advertising revenue climb by more than 30 percent at a time when other networks are struggling.
But growth threatens to exact a price. MTV Networks (MTVN)—the Viacom Inc. unit that runs MTV and a long list ofother cable stations and associated ventures—discovered that its finance processes and systems aren't all they can be, or even should be, for a company its size. "The growth was so explosive, we didn't invest a lot in systems," explains Alex Ferrari, COO of MTVN International and, until July, MTVN's CFO. "We didn't really step back and say, 'Let's look at what we have now and figure out if it's the right structure, the right set of processes.'"
To avoid a very uncool meltdown, earlier this year MTVN embarked on an ambitious effort to reengineer its core financial reporting and planning processes, and to invest in new information systems to support them. Called Project FORE (which stands for Financial Operation Review and Enhancement, but is also a joking reference to several project members' fondness for golf), the effort is in the hands of a dedicated team of 11 full-time professionals who are working with the blessing and support of top executives (Ferrari was an original sponsor), a sense of urgency, and an eyes-wide-open appreciation of the difficulty, complexity, and scope of what they've undertaken. "This is going to touch every area of the company," says Michael Day, one of two senior vice presidents of finance at MTVN and the man overseeing the effort.
Project FORE is being driven by two forces that many CFOs can relate to: growth through acquisition and pressure from a parent company focused on the bottom line. Acquisitions, including $1.2 billion spent to acquire the 50 percent of Comedy Central it didn't already own, have taken the group far beyond its eponymous MTV brand—an empire in its own right, with nearly 84 international channels and 17 Websites, as well as books, videos, radio, and movies—to include VH1, Comedy Central, College Television Network, Nickelodeon, TV Land, Spike TV, CMT, Noggin, The Digital Suite, and other properties.
Yet bigger still is parent company Viacom, a $24.6 billion giant that owns CBS TV, BET, Showtime Networks, Infinity Broadcasting, Paramount Pictures, Blockbuster, and Simon & Schuster, among others. While media companies have fallen on hard times due largely to declining advertising revenues, Viacom still managed to clock a 10 percent revenue gain and 12 percent operating-income gain for this year's second quarter, ended June 30. Viacom is every bit as acquisition-happy as MTVN, but insiders say that's where the cultural similarities end. While MTV rewards creative executives who launch popular programming, Viacom demands careful, precise controls. "There will be constant pressure on MTV from corporate for information, clarification, and for much more," says Joe Simon, who wears the CIO hat for both Viacom and MTVN. "MTV is going to find that if they don't have something like [Project FORE] in place, they're not going to be putting anything on the air! The pressure is already there, and I don't think it's going away."
At stake, then, is nothing less than MTVN's ability to continue to grow and prosper. "Everyone talks about this as a finance project, but I don't think of it that way," says Simon. "I think it's a company project. Because we're going to change the way people behave." Vastly improved IT systems will be a major part of that. Ferrari says the goals are to have fewer and better-integrated systems and faster turnaround time on requests for information, and to develop a budget process that requires only one month versus the current four-plus. Although the project is in its earliest phases, MTV's approach and commitment already provide plenty of discussion points for any organization contemplating a similar overhaul of finance and IT.
The seeds for Project FORE were sown late last year and built upon an end-of-2001 internal reorganization. A team from financial-management firm Parson Consulting conducted an "operational assessment" of MTVN's business pro-cesses and systems. Its eight-week engagement resulted in a 75-page document that outlined and prioritized some 25 recommendations, according to Anne Swaller, a practice director at Parson. Among the findings: an overreliance on manual systems (most involving macro-loaded spreadsheets); the implementation of software without the buy-in, or even the knowledge, of the IT department; and what Swaller implied was a gross lack of financial documentation.
Presenting its recommendations to MTVN executives, including Ferrari and Day, last October, Parson made it clear that fixing the problems would be, as Swaller says, "a major undertaking."
Too major, perhaps. The executives opted to bite off only the top 4 of the 25 recommendations. Today these 4 financial processes form the basis of Project FORE's to-do list. Because they address and will almost certainly alter a number of key workflows, a reorganization of the finance department is possible, although it is likely to be months or even years away. In the near term, the processes and systems used to accumulate financial data will be overhauled.
The four areas are:
Chart of Accounts. With a special focus on the general ledger system, in-cluding coding, visibility, and reporting.
Policies and Procedures. How well are these communicated throughout the company? And, with an eye toward the Sarbanes-Oxley Act of 2002, how well are they documented?
Systems Rationalization. Assessing MTVN's IT structure: Are there too many systems? Duplicating systems? Systems that should be sharing data but are not?
Planning, Reporting, and Analysis, a.k.a. forecasting and modeling. How effective and efficient is the overall annual budget process? Can the annual budgets be done more quickly? Also, since MTV produces most of its own programming, can financial planning and reporting on productions be improved?
With priorities set, then-CFO Ferrari assembled a full-time team of people from various levels and areas of the company. The decision to create a dedicated, full-time team was based on an earlier attempt to overhaul the chart of accounts with a part-time team, an effort that company insiders unanimously agree was a failure. "I've learned that the only way to get something done is to have a dedicated, focused team," says Ferrari. "So I said, 'We're not going to do it part-time or piecemeal. We're building the foundation for the future, and if we don't get it right, we're not going to be able to help lead the company.'"
The team consists of 11 volunteers who left jobs in several different areas of MTVN's operations in order to devote themselves to the project. They are in for what FORE project leader Ralph Carras calls a veritable "MBA program," because their work will expose them to so many facets of MTVN's operations. When the project is complete, in fact, members will be in line for promotions. So, far from a career time-out, participation is clearly a career enhancer.
MTVN also created a project steering committee. Currently numbering a dozen people—new members are still being added—it includes Simon, Day, Ferrari, MTVN Europe CFO Graham Wallace, and MTVN's new CFO, John Cucci. The committee meets with the project team every other week to review their progress, make recommendations, and give tough feedback. It also evaluates resource needs and makes critical decisions to help ensure the project remains on target.
As with the decision to make Project FORE membership a full-time gig, the creation of the steering committee is also a response to MTV's past mistakes. "When we did the chart of accounts conversion, there was no real ownership, no real management input," recalls Day. "A lot of the decisions were made at a level that was probably inappropriate for the scope of the project." For example, the system failed to provide enough cost-center codes, so as MTV grew and added new cost centers, some codes had to be recycled. As a result, the same number can refer to different centers, depending on the year in question. Not cool.
Such careful deliberations did not include plans for a road trip, but a key moment in Project FORE's short lifetime came earlier this year, when the team visited Cisco Systems, the San Jose, California, computer-networks vendor. According to Ferrari, the visit was the result of a "swing-by" visit from Cisco's CEO, John Chambers. "We were chatting, and we told him what we're doing, and he said, 'Maybe you should talk to our guys, because we went through this pain a while back,'" explains Ferrari. MTV's project team had eschewed consultants and other forms of outside help, but they were more than willing to learn from the successes of others.
The visit left the Project FORE team energized and inspired—though executives are careful to point out that MTVN does not plan to achieve a four-hour close. "The price of getting to that kind of efficiency as such doesn't really serve us," says Day. "But to get from 12 days to 8 days, and from 8 days to our current 6 days—we certainly wanted to avail ourselves of that." The focus is now on the quality of information and the company's ability to analyze it.
With its mission further clarified, MTVN decided to create a two-phase approach. Phase one comprises all the preliminary steps that come before the actual implementation, including collecting information, documenting and analyzing current processes, and making recommendations. When CFO IT spoke to the team in July, it was engaged in the collection stage. This entails, in part, conducting in-depth interviews with some 175 MTVN employees throughout the company as part of a massive effort to document all the company's systems and workflows. In addition, several working committees comprised of targeted subject-matter experts have been formed, and they will report to the Project FORE project leaders to help them accomplish tasks in targeted areas.
These interviews have either identified or confirmed a great number of what might politely be called challenges, including a preponderance of manual, spreadsheet-based processes, which greatly impede cash-flow reporting, say team members. Also, due to a lack of front-end tools on the financial databases, it's very difficult to provide timely "what-if" financial analysis. For example, one recent request—to determine how much MTV production staff spends on taxis—proved impossible to answer. Another big problem has been the ad-hoc adoption of software without the approval of IT. Interviews with the television production teams, for example, revealed that they use four separate finance-software packages, none of which are designed to communicate with the others. "It's a real pain point," says topic leader Peter Capozzi, a former vice president of advertising finance.
An obvious place to bring some order to bear, of course, is with ERP software. One of the first major systems decisions MTVN made was to stick with its current system (provided by J.D. Edwards, which was recently acquired by PeopleSoft), although the team will also recommend that MTVN upgrade to the latest version. That may not prove to be easy. "We need to make sure that we won't need to customize it too much," says CIO Simon. "The whole point of buying a package is that the vendor has built it around best practices; as the package evolves, you keep moving up and enjoying new benefits. But if you've hacked the first version to death, as we have, it becomes very difficult to move up to newer versions. We don't want to go there again." Simon says a process of "educating as we go" should help business managers understand the pitfalls of bringing in software under IT's radar.
Other technology decisions will have to be made, and systems bought or built. But before that can happen, MTVN will have to reengineer broken financial processes. Topic leader Cliff Cree, a former vice president in the IT group, has already had an inkling of how difficult that will be. He hired an experienced project manager to help document the finance department's workflows, which number nearly 100. The manager did so, and told Cree, "Maybe I don't understand your business processes, but these workflows look wrong." Cree's reaction? "When someone who is fresh to the business says it looks wrong, that's an eye-opener. I told him, 'They are wrong; that's why we're writing them down.'"
Project FORE is in its infancy; in fact, those close to it can't even agree on the true costs and amount of time it will require. Ferrari puts the price tag at "tens of millions" and the time line at two years. But other team members throw around time lines of four or five years, saying that as new process problems are uncovered that extend beyond the initial four areas of focus, they will have to be fixed as well.
Will the team succeed? As MTV's veejays like to say, stay tuned.
Peter Krass is a former senior editor at Inc., Planet IT, and InformationWeek, and president of Petros Consulting.
Silicon Valley Comes to Times Square
MTVN's Project FORE team has taken much of its inspiration from Cisco Systems's move to a virtual close—reducing the time it needs to close the monthly books from 14 days to just four hours. According to Rick Timmins, Cisco's vice president of worldwide sales finance, this achievement depended on six building blocks:
Senior Management Commitment. At Cisco, it started with the CFO (at the time, Larry Carter) focusing on improving the process. It then gained the support of other top executives during the effort's six-year run.
Process Reengineering. "There's no point in automating bad processes," says Timmins. "You have to reengineer your processes to take out all the inefficiencies. Then you begin to automate some of those activities."
Focus and Review. The old saw "You manage what you measure" gets a twist at Cisco, where they like to say, "You can't improve what you can't measure." So the company developed metrics around quality, cost, cycle time, and client satisfaction. Then it examined each of those functional areas from a finance perspective. From there, Timmins says, "you measure and improve, measure and improve."
Link with IT. Cisco finance partnered early on with the company's IT department and funded the systems—all the development, all the applications—that greatly enhanced speed of deployment.
Use of Internet Applications. Back in 1997, Cisco was among the earliest to adopt Web-enabled software. Good news for imitators: today there are lots of good off-the-shelf products available, reducing the burden on internal development.
Network Systems Architecture. Cisco's worldwide network makes finance data available anywhere. "Whether you're in Beijing or Paris or Sydney, everyone has access to this information," says Timmins. Standardization also helps. For example, Cisco uses just one ERP system worldwide, which it says is a key differentiator.
Hillenbrand: New Life, and a New IT Strategy
Redesign processes first, automate second: it's hardly a new message. But while MTV Networks and many other companies are still working to get it right, Hillenbrand Industries Inc. seems to have figured it out.
Publicly traded Hillenbrand is a $2.2 billion holding company for three businesses that represent an odd sort of vertical integration: funeral insurance; hospital and health-care products; and caskets, cremation products, and other funeral-home products.
In the past two years, Hillenbrand has changed just about everything that could be changed, short of moving into new businesses. First came a flood of new management: two-thirds of Hillenbrand's top executives are either new to the company or in new positions, according to CFO Scott Sorensen, himself newly hired in 2001. "We found ourselves significantly retooling the management team to a degree I've never seen before all at one time," he says.
Next came the new team's new vision for Hillenbrand. It involves remaining in the three core businesses, but giving each one a specific mission and role and, with the Sarbanes-Oxley Act of 2002 firmly in mind, dramatically improving financial processes. To address the latter, Sorensen has instituted new weekly meetings with the CFOs of the three operating companies, a big change from the quarterly meetings of the old regime. Driving the discussion at these meetings is a new financial scorecard that Sorensen's team developed, which stresses metrics including revenue and cash flow while downplaying earnings per share. He's also put in place a new risk-management process called the Risk Radar. One result: Hillenbrand recently issued guidance for the current year that lowered the revenue by $25 million. While that's not the cheeriest of news, "the fact that we're trying to be more sensitive to revenue growth when we don't see it is based on some of our new forecasting tools," says Sorensen.
The final component is IT. Like MTV, Hillenbrand has been hampered by multiple systems (nine for accounts payable, for example) and is working to drive consolidation around a single ERP system. Unlike MTV, however, Hillenbrand is placing a major bet on outsourcing as a solution. It signed a seven-year, $187 million deal with IBM Global Services in which IBM will take over virtually all of Hillenbrand's IT hardware, not to mention nearly 40 of the company's 200 IT staff.
Sorensen estimates that by next year, when the IT overhaul is complete, the company will have spent as much as $140 million. "It's far from trivial," he says. But it could provide the kind of insurance that makes sure Hillenbrand doesn't have to use any of its own products. —P.K.