Striking a Balance

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

Similarly, Hackett argues that finance shouldn’t be in the business of generating management reports. Instead, those should be automated with off-the-shelf software.

The reason to be rid of all this work is that finance has bigger issues to worry about. “Today, there are so many things coming at companies that you need to be on the front line helping business leaders assess their risks and opportunities,” says Hackett. “But you can only do that once you purge the mind-set that transaction processing is actually part of finance. It’s just cutting checks, and people have been doing that since the 14th century. It’s time to let go.” — D.D.

Decision Support at Cisco

If there were a prize for the most discussed but least implemented management idea, “business partnering” would be a strong contender. CFOs have been talking for years about the need for finance to work with business managers on strategy and operational issues. But to date, only a relative handful of companies really do it.

Cisco Systems Inc. is one. For many years, the company has dedicated teams of financial analysts to each of its businesses. Because routine transaction processing is centralized and largely automatic, these analysts have been able to focus on delivering data and analysis to business managers. But until recently, says CFO Dennis Powell, they spent too much of their time on the data part. “In the past, we had people writing their own programs to get specific numbers,” he says. “Now, we’re pushing more of the data out to the businesses.”

To do this, finance helped managers think through what metrics they need to run their businesses — measures such as growth, profit, market share, and customer satisfaction — and send that data from a central database to each executive’s dashboard. The users can drill down for specifics, but simplicity is the goal. “We want to give a straightforward and brief view that allows the manager to keep a finger on the pulse of the business,” says Powell.

Largely freed from the search for numbers (analysts still have to dig for about 5 percent of the data that businesses need), finance analysts are spending more time on strategy development. Powell identifies four ways finance helps. Value chain analysis is one. This means finding the most profitable links in a chain of activities, so the company can decide where to focus its efforts. For example, finance was involved in Cisco’s early decision to outsource all of its manufacturing. Risk analysis is another. Finance maps the risks of alternate strategies and, once the business has settled on a strategy, sets up a system to monitor threats and give early warning of any problems.

The third way is competitive analysis — assessing the strengths and weaknesses of the companies Cisco would run up against in any strategy. Finally, finance helps link strategy to execution by defining the metrics that will reveal whether or not the plan is working.

Beyond this, finance helps in areas such as operational efficiency. Two years ago, Powell led a drive to cut Cisco’s operational costs from 41 percent of revenues to a goal of 35 percent. Finance built the case for doing so, then developed, monitored, and managed a cost-cutting program for each organization. In eight quarters, operational costs have fallen to 36 percent. — D.D.


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