The Incredible Shrinking Finance Department

CFOs are restructuring finance departments in various ways, an effort that seems likely to continue even as the recession fades.

Case in point: NetSuite, a $166 million software firm that offers ERP systems to small and midsize businesses through the software-as-a-service model. “We’ve grown finance, but we’ve primarily hired [in Manila],” says CFO Ron Gill. The firm has had a captive shared-services center there since 2006; it has handled all of accounts payable and the consolidation of financial results, even predating its December 2007 public offering. NetSuite now has more than 200 employees based there, fueled by a “recruitment process [that] looks very much like anywhere else,” says Gill. Just this past year, he helped staff up the Manila-based internal-audit team rather than turn more work over to a third party, since many controls that need to be audited for Sarbanes-Oxley are handled in the Manila office already, and the talent in the area is “incredibly high-quality.”

Sometimes, offshore finance hiring increases as a result of overseas expansion in other areas. Aruba Networks, a Sunnyvale, California-based $267 million wireless networking and security company, opened an office in Bangalore, India, five years ago to foster offshore research-and-development work. Over the past year or so, it has switched and broadened the focus by migrating back-office tasks from the United States. Now, about 10% of its more than 35-person finance and accounting team is located in Bangalore, primarily doing order-entry work, and the company plans to add more staff there, possibly including someone to generate ad hoc reports for business managers.

“It’s not [about] firing anyone,” says Aruba CFO Steffan Tomlinson, “but if someone leaves the company and we’re looking for a replacement, and if the job function was transactional in nature, we’d most likely look to Bangalore.”

That philosophy holds even truer at larger companies, like $4.5 billion semiconductor company Broadcom. “To the extent that I can offload reviewing expense reports to someone in India and not have a business-unit controller review them, that expands the scope of what the controller, who of course is much more highly paid, can do,” says Broadcom CFO Eric Brandt. Currently, about 30% of the firm’s 220-person finance staff is based outside the United States, both in India and in other key operational bases, like Singapore.

Still, most survey respondents say they’re not sure how the pricing and location of offshore and outsourced opportunities will affect their hiring, and, as previously noted, few have moved to that model in a big way.

CFOs should consider carefully where to set up those operations, when and if they do. Curt Espeland, CFO of Eastman Chemical, a $5 billion maker of chemicals, plastics, and fibers, has brought his cost of finance down about 13% since 2002, by leveraging Eastman’s centralized transaction work in four financial shared-services centers around the globe — two in the States, one in Rotterdam, and one in Singapore. While the company gains some efficiencies simply through the consolidation, he says he is always looking out for new and lower-cost places to migrate the work, including outside the United States.

However, Espeland is choosier now than he might be if he were just starting the process. “You have to look at how long the labor arbitrage will last, since we don’t have as much to gain by moving to a low-cost location,” he says. For example, the company just acquired a plant in Estonia, and he considered locating some accounting work there, but ultimately decided against it. Hackett analysis suggests that wages will soon rise in eastern Europe.

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