Striking a Balance

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

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.

Hackett’s contention, in a nutshell, is that technology and outsourcing have together made shared services obsolete. “Shared services were a way of standardizing your finance activities so that you could deploy best practices,” he says. “Then enterprise systems came along, and you could use that as a surrogate function to force people to change. But now the answer is to just outsource the whole thing.

“Ten years ago I would have told you the opposite,” says Hackett. “Back then, the outsourcers had big problems: they were usually higher cost, and the technology wasn’t there to help them integrate with your systems. But all of that happens today. The best outsourcers are now equipped to take your messy processes and make sense of them. You don’t have to negotiate internally about what the best practices are — the outsourcers have built the best practices into their technology. And because your finance employees will now work for the outsourcers, you’ll find that the internal politics get truncated quickly.”

What about the argument that some large companies — because of their scale — can process transactions even more cheaply than the outsourcers? “If you think you can do it cheaper, you probably aren’t looking at total cost, including the cost of overhead and periodically upgrading technology,” says Hackett. “As a rule of thumb, unless you can do it a third cheaper than the outsourcer, you are lying to yourself.”

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