For finance, the central theme of the 1990s has been transformation. Every change initiative from reengineering on has set as its ultimate goal the notion that finance staffers would become more valued and play a more strategic role in operations. But an increasing number of CFOs are realizing that something important has been left out of that equation.
“Finance has to be a service function, and the only way you can transform a service organization is to transform and enhance the capabilities of people,” argues Donald R. Shassian, senior vice president and CFO of Southern New England Telecommunications (SNET), in New Haven. “Reengineering processes and implementing new systems is just changing the cost structure. It takes people to be more-effective, better business partners. And you can’t talk about a total transformation of finance without an investment in people.”
SNET is one of nearly two dozen companies contacted by CFO that have begun in recent years to revamp their training and education efforts within finance. Those efforts range from the all-encompassing, complete with thick catalogs of courses for all of finance, to the narrowly focused. Some companies have done most of the teaching internally; others have turned to the executive-education arms of university business schools. “A lot of folks are embarking on this, and you have a whole raft of [approaches] out there,” comments John Boquist, a finance professor at Indiana University who has consulted with Whirlpool Corp. and other companies on their educational plans.
In part, the divergent strategies reflect cultural and company-specific distinctions. But they also reflect widespread uncertainty. There is precious little evidence of what works. Education-minded CFOs instinctively understand that their people need to be business partners, and they’re sure that training can help them reach that elusive goal. But there’s also a yearning to know how best to get there. Indeed, in several interviews, executives turned the tables and asked how their efforts compared with those of other companies.
“We’re in the embryonic stages, in which companies are trying to imbue in the learning process the link between finance and the corporation’s strategic goals,” says John Shank, a visiting professor of accounting at Babson College, in Wellesley, Massachusetts. “There has been an acknowledgment of the need for something new, but no models are dominant yet.”
Classic finance education, as epitomized by Ford Motor Co. and its post-World War II “whiz kids,” was built around an intense focus on control issues. Even as recently as October 1991, when CFO reported on the so-called Corporate Ivy League, what truly distinguished the companies that were best at training future CFOs was the technical mastery of the students who went through their in-house education programs.
“Ford was good at finance training to the extent that it taught the controllership stuff,” says John Percival, a finance professor at the University of Pennsylvania’s Wharton School. Today, he says, “the criterion for ‘good’ should be training that attempts to build a culture within finance and is focused on the role finance ought to play in the organization.”
New Skills Needed
When finance is expected to play a greater role in other corporate functions, more is needed than technical prowess — especially when business conditions are shifting rapidly.
“We had to change from being bookkeepers and policemen to being business advocates,” says Robert Vodzack, controller of GPU Generation Inc., the deregulated non-nuclear power unit of General Public Utilities Corp., in Johnstown, Pennsylvania. “When you have a guaranteed revenue stream, and investments go into the rate base and get a fair rate of return, you don’t have to think about managing assets effectively or about concepts like shareholder value.”
“There is a big competency gap out there,” asserts Jonathan Schiff, an accounting professor at Fairleigh Dickinson University and a consultant who launched the Montvale, New Jerseybased Finance Training & Development Institute consortium in 1994. “Many finance people don’t have the skills to sustain the changes that CFOs want to effect.” The institute’s main initiative has been to benchmark learning practices at large, global enterprises. Schiff expects to release his first study of more than 100 companies in June.
Competition-tested executives have turned to education to make their people more valuable. Such CFOs as Robert Darretta at Johnson & Johnson, Erik Nelson at The Procter & Gamble Co., and Douglas Oberhelman at Caterpillar Inc. wanted education to speed up staffers’ learning curves. At J.P. Morgan & Co., chairman Douglass “Sandy” Warner wanted to make sure that finance kept pace with organizational changes as the once-staid money-center bank evolved into a global financial services firm with profit centers around several new business lines.
“We needed more CFO-like people who understood products and markets and could support a P&L organization,” says James Baughman, a former Harvard professor whom Warner hired to run Morgan’s in-house finance education effort four years ago.
Even a vanguard finance educator like General Electric Co., known for years for breeding top- flight CFOs and CEOs, has been swept up in the business-partner quest. In 1995, this member of CFO’s Corporate Ivy League outlined its nine-point model for a “Contemporary GE Finance Leader”: “Strategic, externally focused thinker…not merely a scorekeeper”; “Well-rounded businessperson…cross-functional awareness and impact”; “Uses latest financial tools and best practices”; and so on.
“We’ve clarified the vision so there is no misunderstanding of the role people are expected to play,” notes Peter Mondani, GE’s manager of financial leadership development. “If all you want to do is analyze numbers, GE isn’t the place for you.”
If there is a consensus that finance staffers must become better business partners, there is far less agreement about the kind of training and education staffers need. The case studies, which follow, illustrate three general approaches: (1) building comprehensive programs; (2) filling curriculum gaps after an assessment of finance competencies; and (3) targeting skills that promote cross-functional behaviors. Underlying these approaches is the desire to provide finance with a consistent foundation of skills.
“On-the-job training is not a bad way to learn, but as the company got larger, our concern grew about consistency,” says Bill Ashbaugh, who led the design and development of P&G’s expansive Finance & Accounting College (see “The Proctor & Gamble Co.: Starting from Scratch,” below). “What we have tried to do is provide a consistent learning environment on a worldwide basis. For the first time, all of our people understand the key techniques and the perspectives that management needs.”
Others have pursued consistency by evaluating the skills of the current finance people, then developing courses that address specific needs. At Chrysler Corp., the first new course was one on making persuasive presentations. “Finance people must function outside their cubicle” to be business partners, says Dan Cowan, Chrysler’s finance training and education manager.
Despite the obvious interest at Chrysler and other companies in fostering cross-functional interactions, rare is the actual classroom experience that brings together finance and nonfinance managers. “We want work to be cross-functional, but training is still functional,” observes Anjan Thakor, a finance professor at the University of Michigan Business School. Thakor developed a five-day cross-functional program for The Dana Corp. that includes people from operations as well as finance (see “Custom Delivery,” below). “It’s hard to do cross-functional training without a cross-functional audience,” he says.
What’s the ROI?
But how to measure the value of finance’s new education initiatives? “We have nothing to show that we are smarter, faster, or make better decisions,” admits Terry Carlton, finance director of decision support for Sprint Corp., in Westwood, Kansas. “We’re firmly committed to training, but we’re not real confident that it’s making a difference.”
Like Sprint, a number of companies contacted by CFO have had to rely on mostly anecdotal evidence that the educational investment is worth it. Surveys are a popular tool. P&G, for one, talks independently to course participants and their managers to see if the learning has had any impact on job performance.
Other companies simply survey general managers. At Lucent Technologies Inc., in Murray Hill, New Jersey, finance has seen its rating as a strategic business partner jump to 75 percent from a baseline of 50 percent a year ago. Likewise, at TRW Inc., a technical products and services company in Cleveland, finance has seen its scores for business partnering improve dramatically since it began sending its staffers to Duke University’s Fuqua School of Business. “Our people do step out of the box and get more involved with other functional areas,” observes TRW vice president and corporate controller Tom Connell. “Once you show you’re valuable to general managers, they want you around.”
Back in 1993, Connell, then-vice president of finance for one of TRW’s automotive groups, was among the first group of students to troop to Fuqua for a five-day training seminar called “Creating Strategic Partnerships.” The custom-designed curriculum took the 50 or so participants through TRW case studies and elaborate business simulations. For Connell, the highlight came in the woods surrounding the Fuqua campus in Durham, North Carolina. The group was instructed to form teams that had to perform awkward tasks such as removing a can from inside a circle using only a bicycle tube.
“People were stretching the tube across the circle, trying to move the can,” Connell says. “It was an example of team problem- solving that was fun. It was a question of trying to be as imaginative as you can.”
Is this any way to build a better business partner? Maybe.
The Procter & Gamble Co.: Starting from Scratch
Almost all the business smarts that Erik Nelson has acquired in his 36 years in finance at Procter & Gamble has been on the job. And that approach to learning has served him well. In 1993, he was named CFO of the giant consumer products company. Nevertheless, in the five years since he moved into the top finance spot, Nelson has guided the creation of a global P&G Finance College, complete with three academic tiers and a fourth that will be added this year.
“As finance has become so much more technical and sophisticated, and as we have grown, we’ve had to elevate our skills and the skills of our line managers,” says Nelson. “Learning faster and learning on a consistent basis worldwide is the only way we can succeed.”
At P&G, which has a strong promote-from-within culture, the finance curriculum is tailored to the needs of finance staffers at various stages of their careers. College I is for all new hires — about 400 a year. The three-day program focuses on fundamentals and is taught in the same format at P&G locations all over the world. “Particularly in developing countries,” observes Nelson, “this helps with acculturation to a common set of principles.”
College II provides much more technical training for people in finance and administration. Two thousand people a year take at least 1 of the 18 one- and two-day courses that cover the nuts and bolts of risk management, activity-based costing, competitive analysis, and the like. The focus is on mastery of topics that are needed for promotion to the associate director level. P&G offers versions of the courses in each region of the world in which it operates.
College III is for newly promoted associate directors who generally have six or more years of experience at P&G. Each May, these 55 or so key managers convene in Cincinnati for a four-day seminar run by Nelson and other finance leaders. The sessions revolve around group problem-solving of real P&G case studies, and there are lively exchanges on topics ranging from new tax laws to ethical questions.
The value of cross-functional teamwork and serving as a business partner is a constant theme in all three colleges. This spring, in a move to reinforce these virtues, Nelson approved the creation of College IV for more-experienced managers. The focus will be on change management. Each class of 15 to 20 “will come to class once a month and go through various modules that they will apply to the [change] projects they bring from their own jobs,” says Nelson. “It’s an experiential type of training.”
Despite the all-encompassing nature of P&G’s Finance College, Nelson says the investment is minimal. Besides having only one staff person to run the colleges, he relies on internal subject-matter experts to do the teaching. “It’s part of their job,” he says.
The return on investment, however, is hard to measure. Other than anecdotal reports and a sense that the program helps foster a common culture and skills in finance, Nelson points to the assessments that are done three months after a course is offered. Both the employee and that person’s manager fill out a questionnaire that asks whether the training was applicable to the job; the two sets of answers are then compared. “We can’t quantify this measurement,” Nelson says, “but it gives us a good idea of how well these lessons are translated.”
Lucent Technologies: Only Connect
After Lucent Technologies Inc.’s 1996 spin-off from AT&T Corp., CFO Donald Peterson recognized the unique opportunity he had for a fresh start. Out went the heavy emphasis on reporting and control that had dominated training at Ma Bell; in came a 27-month program (affiliated with Babson College) for college grads that offered a heavy dose of strategic cost management and entrepreneurial finance.
“We’re trying to build business professionals who happen to be expert in finance, rather than build finance professionals who then learn about business,” says Gil Harris, director of internal audit and vice president of the Financial Leadership Development Program. “That sounds like a subtle difference, but we want people focused on using finance as a competitive advantage rather than as a tool for control.”
But last year, Harris discovered a glitch. When the new hires rotated into short-term job assignments in between their classroom work, they couldn’t “seed” finance with the new concepts they were taught, because few people understood what they were talking about.
A solution will be tested with the second group of 50 new hires who begin the program this spring. Each student will have a mentor from the finance group, and mentors will go through an abbreviated course of study that exposes them to the same new ideas. “This will be more successful,” Harris predicts, “because we’ll all be speaking the same language.
Southern New England Telecommunications: Filling the Gaps
Soon after Donald R. Shassian took the CFO job at SNET in December 1993, he was shocked by how much stagnation and complacency he discovered in the finance organization. Shassian had previously worked more than 16 years at Arthur Andersen, a company that invested heavily in professional development and had a stellar reputation for grooming top finance executives. No one, he quickly concluded, would want to recruit finance leaders from SNET.
“People had been in the same positions for a long time,” Shassian recalls. “They thought it was risky to move. People should want to volunteer for special projects, but they were trying to be protective and secure.”
This problem, he realized, stemmed from an acute lack of the skills necessary to grow within the organization. Most finance staffers didn’t understand the basics of the rapidly changing telecommunications industry. They were stunted as leaders and managers. And they were so inwardly focused that they didn’t have a clue about how to help other functions solve business problems.
But rather than assembling a catalog of courses or mandating job rotation, Shassian spent several years documenting the skill gaps within finance — and developing a strategy to fill them. “I could have come up with a quick solution,” he says, “but I would have missed the mark. I might have made wrong decisions, and the folks participating would not have understood why this is so important.”
The centerpiece of Shassian’s efforts was a lengthy self-assessment survey given to about 400 finance managers in April 1997. The survey presented 98 finance-related skills covering technical competencies (for example, cash-flow analysis and process mapping), management abilities (promoting diversity, fostering teamwork), and business acumen (basic telephony concepts and “pipeline” products). For each, the employees were asked to rate their own level of expertise from 1 (novice) to 4 (expert).
Some employees were initially concerned that the survey could be used against them in performance appraisals. Shassian reassured them that the data would remain strictly confidential. The eventual response rate was about 80 percent. Each survey was then fed into a specially designed computer program. A regression analysis compared the skill requirements for specific jobs with the skill levels people reported, and the software spit out the largest and most prevalent gaps.
“Other companies have established a curriculum of courses that have no correlation to their needs,” notes Fred Heimann, the veteran finance director at SNET whom Shassian tapped to run the new Financial Professional Development Program. He points out that the survey confirmed the obvious — accounting skills were high and accountants’ insights into the business were low.
The survey also served up a big surprise: finance people were confused about where all the company financial data was kept and how best to access it. “It sounds simple, but learning this by osmosis was a poor way to learn,” Heimann says.
Next month, SNET hopes to correct that deficiency by offering the first of its new courses. Another course on tap is a primer on products and services in the evolving telecommunications industry, with an emphasis on helping finance look beyond accounting issues in evaluating capital investments. Heimann expects a total of eight courses in all, including one on presentation skills. “Finance needs to learn how to sell ideas,” he says. SNET managers will teach all the classes.
Although these new classes will not be mandatory, Shassian believes the self-assessment exercise has motivated staffers to fill their skill gaps. They will also be encouraged to pursue new assignments, he reasons, now that they can gauge their abilities against those needed for various finance jobs. And they will be more aware of the importance of being a business partner. If nothing else, people now seem more willing to volunteer for special projects.
Yet Shassian concedes that he’s quite far away from the ultimate goal. “Bottom-line success,” he says, “will be when folks want to hire my people away.”
GPU Generation: Targeting Practice
A few months after he was promoted to the top finance post at GPU Generation Inc. (Genco), the non-nuclear power unit of General Public Utilities Corp., Robert Vodzack was sent to Pennsylvania State University by his bosses. They wanted him to bone up on business issues related to the rapidly deregulating utility industry. So there he was in class one day in November 1996, surrounded mostly by nonfinance executives from throughout GPU, when the idea smacked him in the face: I’m not the only one who needs this stuff.
“I went there for help with my new job,” Vodzack says, “but I knew others could use it.” So last July, he convinced his bosses to back a three-day program for managers from the generation unit. Developed in conjunction with Penn State, the curriculum zeros in on the financial skills needed to operate in a competitive, deregulated business environment. About 100 people have been through the GPU-customized sessions so far. Only 20 or so, however, have come from finance positions.
“The whole intent was not to have a finance-only program,” Vodzack says.
Day One: Finance professor J. Randall Woolridge delves right into what he calls “the fear of finance” — the practice and the people — and he comes back to that theme again and again. “It takes trust to go from a command- and-control finance organization to having finance as part of a competitive team model,” he says. At another company, recalls Woolridge, the rift between the financial and nonfinancial participants was so severe that the residue from past clashes quickly bubbled to the surface. The CFO asked the professor to leave the room, and what ensued was 45 minutes of yelling and screaming.
The GPU course work ranges from such basics as financial statements and ratio analysis to understanding the drivers of shareholder value. Particularly for nonfinancial managers, cash flow management and investing capital efficiently are foreign concepts, and in group break-out sessions, barriers break down as the finance managers help bring line peers along.
One case study that hits home starts with Woolridge explaining how investors value GPU and how that determines the stock price. He then explores a recent decision not to invest in a major capital project. The group members know the bare-bones outline of the story, but no one has ever looked at the financials to see how the projected returns made the project a no-go. “They get the idea they have to think this way in a competitive world,” Woolridge says.
The lessons on the capital markets have also had an unintended consequence. Line managers used to think of finance as the nemesis, arbitrarily putting the kibosh on their projects. Now the managers realize that capital providers are telling finance what they expect.
As for Vodzack, he hangs in the back of the room, and Woolridge sees him smile like the Cheshire cat when engineers start talking about hurdle rates. Vodzack attributes some of Genco’s higher profits and lower capital expenditures to the custom program. With the generation unit on the block, he believes that the training makes the unit more attractive to potential buyers.
And there’s another reason for hanging around the classroom. “I learn something new with every course,” says Vodzack.
If the roughly $3 billion that companies spend each year on university-based executive programs, customized offerings now account for 40 percent of that total and are growing far faster than the open-enrollment segment. Custom programs, which infuse the curriculum with company-specific issues and concerns, offer CFOs a chance to drive home the business-partner theme in an intensive fashion.
Since 1994, Johnson & Johnson has put nearly 600 finance professionals through a program developed with the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School. Called “Strategic Partnering in Finance,” the weeklong sessions teach through case studies how finance can contribute to business success. The cases are tailored by region, and every participant must compose an action plan. “We track the sessions loosely,” says training and education director Rich Sample, “but we can tell we’re headed in the right direction.”
After a year’s hiatus, TRW is again running its “Creating Strategic Partnerships” seminar with Duke University’s Fuqua School of Business. In 1997, TRW added a second program, with an international flavor. Offered through Thunderbird, The American Graduate School of International Management, the weeklong session emphasizes cross-cultural skills in negotiations and capital-investment options, among other topics. CFO Carl Miller closes the program by asking people to identify three things they’ll do differently in their job. A few months later, he checks on their progress.
The Dana Corp. used to send its finance high-potentials through open-enrollment programs at schools like Harvard and Stanford. Then CFO Jack Simpson decided it made more sense to bring the mountain — in this case, the University of Michigan Business School — to Mohammed. But what was supposed to be a custom program run every other year for 20 finance professionals is now run twice a year for 30 people from various functions. Why? The policy committee of Dana’s board looked at the program content and worried that line managers wouldn’t have a clue what finance was talking about.