Apparently, status quo is not a state that big-company finance departments are fond of. In a recent CEB survey, finance leaders at 81 percent of 264 large companies said they were engaged in major finance redesign initiatives.
But they weren’t necessarily getting all the benefits they hoped for. In a more targeted survey of 45 companies that completed transformation projects, only 27 percent reaped the qualitative and quantitative benefits outlined in their business case and sustained a majority of the cost savings for two years post-implementation.
To be sure, “transformation” in a corporate finance setting is a rather ambiguous concept. “We don’t like the term,” says Tim Raiswell, a managing director at CEB (formerly Corporate Executive Board), a membership-based corporate research and advisory firm. “We use it because most finance professionals were trained to use it. Consultants, like the Big Four, use it readily.”
Generally, it means any strategic shift in the purpose or means of executing corporate finance, or major process-level or IT-level changes, according to Raiswell.
Through its research on finance transformations, CEB has identified five common mistakes that CFOs make.
1. Focusing too much on finance costs as a percentage of sales.
In its conversations with finance professionals over the past two years, CEB heard over and over that finance-department operations should cost about 1 percent of company revenue. “We asked where they got 1 percent from,” says Raiswell. “They said it’s an industry standard and that they heard it from consulting firm A or accounting firm B or benchmarking firm C.”
The problem was, CEB was hearing that from companies across all manner of industries, sizes and profit margins. “Isn’t it flawed to think that a very complex piece of your service organization like finance should be configured around a simple cost benchmark?” says Raiswell.
Finance should view itself less as a cost center and more of a profit center, according to Raiswell. Finance makes things, like reports and advice, that the business consumes. It guides business decisions. “If you want to lead a balanced transformation initiative that [creates] a finance organization configured to support the business where it needs support, you need to look beyond costs,” he says.
2. Concentrating too much on customer satisfaction.
Counterintuitive? For sure. But generally speaking, customers possess only some of the information necessary to know what they want and need, while the product or service provider possesses the rest.
Finance departments’ internal customers often make contradictory requests or demand things that finance isn’t capable of producing, says Raiswell. If finance focuses too much on customer satisfaction, judging itself by how much customers are asking for and whether it’s fulfilling all those requests, it “may never actually get to what the customer needs.”
In fact, CEB found that successful transformations are typically marked by a healthy tension between finance and its internal customers. “In a world where finance resources are finite, you can’t provide the same level of services to each business unit,” Raiswell says. Fast-growth units or those with the most growth potential get top-tier service, and vice versa.