Larry Carter won’t stop to declare victory. Sometime in the past year, Cisco Systems Inc.’s finance organization–arguably the most efficient in the world–achieved its much- touted aim of a “virtual close.” On any given workday, the San Jose, California-based Internet networking company can now produce consolidated financial data and balance sheets by about 2 p.m. It has been two years since it has had any adjusted entries close the following day.
Cisco’s senior vice president and CFO can’t pinpoint exactly when the virtual close crossed over from goal to reality. “This is an ongoing process, where you are always making improvements,” says Carter–and a process that is far from finished. “There are so many other aspects besides just getting the monthly books done. I don’t think you’ve seen anything yet,” he continues, seeming almost to play down one of the proudest accomplishments of his finance department.
Indeed, he considers the “close” part of the phrase something of a misnomer; the process is actually most valuable to Cisco for the way it opens a world of real-time company information for use throughout the workforce. The same systems that feed the ledger also provide Cisco executives with the data they need to react to lightning-fast business changes in the Internet world. That means the totals on bookings, revenue, discounts, margins, and order status are available on a daily basis. “Even when I get the [close] numbers, I already know what the answer is because we have been monitoring it all along,” the CFO notes. And that makes Carter a more valuable source outside the company, as well.
“To me, as an analyst, Larry’s ability to drill down and see the productivity of the week by product, by region, or by account is actually more valuable than the virtual close,” says Martin Pyykkonen, an analyst with CIBC World Markets. “It gives me confidence in Cisco’s ability to actively manage the product and sales pipeline–almost in real time.” And the abundance of data has helped Cisco achieve other breakthroughs in recent months, including a nearly 50 percent reduction in the time it takes to collect past-due invoice payments, to just over 30 days.
That range of accomplishments earned the 57-year- old Carter the 2000 CFO Excellence Award for Implementing Best Practices in Finance, making him the first two-time winner in the category.
A Virtual Revelation
The idea of a virtual close was not fully formed when Carter, a 19-year veteran of Motorola Inc., joined Cisco in 1995. Instead, he wanted to reduce Cisco’s 14-day close to 1 day–something Motorola had achieved–while cutting costs in half.
Carter could see that his new employer was facing massive growth, which could be very hard to handle with such slow financial systems in place. “I was concerned about the timeliness and integrity of our overall financial information,” he recalls. “If you have a 14- day close at a company like Cisco–which even five years ago had the opportunity to grow pretty rapidly–you can spin out of control.”