Striking a Balance

Can finance departments be cost-effective and smart at the same time?

The challenge can be great for a large, entrepreneurial company. Consider the case of AutoNation Inc., a $19 billion auto retailer that began as an agglomeration of 275 existing auto dealerships. “We aren’t like Home Depot, where you build on a greensite and replicate the model over and over,” says executive vice president and CFO Craig Monaghan. “Instead, we inherited 275 unique computer systems, 275 charts of accounts, and 275 cultures.”

Monaghan has been working to impose some order. So far, one-third of the company’s stores are doing some of their basic accounting in AutoNation’s shared-services facility. Twenty stores have shifted over entirely. Monaghan predicts the project will take another two to three years. “This is not easy,” he says. “It’s naïve to think that when you do this, you’re just changing the finance organization. As we change our back-office activities, we inevitably force the front end of the business to change as well. For example, the way you sell a customer a car and help the customer get financing is unique to every store today, but will have to move to a national standard. And there’s the rub: everyone thinks their way is best.”

Such beliefs often contain some truth. While there’s little reason to have hundreds of different accounts-payable processes around the company, there can be subtle — but important — differences in what businesses need from that activity. For example, if one business unit is focused mainly on cash flow, it may be more concerned with the cycle time of the collections process than with its cost. For another unit, the concern might be around error rates, because its customers have been upset in the past about incorrect bills.

Dillon of Agilent Technologies agrees that a shared-services operation that is out of touch with the specific needs of its customers can create problems. Agilent’s solution has been to encourage both shared-services and business-finance employees to do rotations within the businesses they serve. “In the area of cost accounting, for example, it’s true that you are going to learn better when you are on the shop floor than if you are in Bangalore,” says Dillon. “By aligning employees in our shared-services center to that business and offering rotational assignments, we get some good cross-fertilization.”

What is difficult for basic accounting is even harder for higher-level processes such as management reporting and budgeting, planning, and forecasting. Dow Chemical is one company that centralizes all of these processes. According to corporate vice president and controller Frank H. Brod, planning activities are managed by the corporate finance function, which determines what global assumptions (such as currency rates) the entire company will use. A six-person “shared reporting team” works with the company’s four business finance directors to come up with the plan. Business-unit executives contribute to the process.

This works for Dow, which has arranged its hundreds of businesses into just a handful of portfolios, but other companies will prefer to leave more of the process in the hands of the businesses. “I’d be very concerned about centralizing an activity like forecasting,” says Lafarge’s Olsen. “With our 1,000-plus operating sites, we would lose the touch and feel of where those businesses are going.”

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