It is often said that you can’t change the stripes on a zebra and to some extent that is true.  But for CFOs striving to become strategic partners to the organization, the stripes need to be changed.

For over 10 years, I and other Finance Transformation consultants have presented models describing the typical evolution of finance organizations from the role of custodian of corporate assets to that of a strategic partner.  While these discussions were typically met with nodding heads, it begs this question: Why are so few finance organizations actually viewed as strategic partners?

I’m not sure there is a single answer to the question.  The one-off external demands on Finance have been significant over the past 10 years.  The wave of ERP implementations in the late 90s followed by massive efforts to document controls, significant acquisitions and divestitures and increased GAAP and SEC reporting requirements have kept finance organizations moving from one special project to the next.  But there comes a time when these extraordinary items become part of the ongoing routine responsibilities of Finance and need to be managed as such.  They can no longer be used as a reason for not updating the financial system infrastructure vital to an organization’s growth and success.

One of the prevailing themes that I see in almost every finance organization is the use of “single point” solutions.  By that I mean that there is one solution used for consolidations, another used for planning and yet another for tax provisions.  Not to mention the army of spreadsheets used for ad-hoc analysis.  While these tools effectively perform their desired purpose, they collectively create additional analysis and data issues for finance.

Specifically, these tools are usually implemented and fed with summary level data, thus limiting the ability to drill down into the source data.  This creates additional sources of siloed data that must also be reconciled and managed by the finance organization.   In addition these solutions can create:

• User confusion on where to go for Financial information
• Large amount of data redundancy between financial systems (e.g. sub-ledger, ledger, etc.)
• Data latency challenges
• Inability to “slice & dice” data and drill down to underlying detail
• Large number of complex data extracts and loads between Financial systems
• Inconsistent definitions and concatenated fields
• Onerous maintenance requirements
• Elongated process cycle times (Close to Report, Analyze to React, Planning & Budgeting)
• Difficult to react to structural changes (e.g. new acquisition, new products, etc.)

While there isn’t a silver bullet to solve this issue, there are some leading practices that are emerging which allow finance organizations to begin to solve these issues.    With the advent of integrated Performance Management applications such as Hyperion and Cognos, an opportunity exists to leverage the power of today’s technology to provide robust reporting while simplifying your overall reporting environment by leveraging a centralized data repository that brings together single or multiple sources of GL data, sub-account detail and or project detail thus enabling “Ad-Hoc” and User-defined reports with slice & dice capability and drill down/back to transaction details.

There are typically 6 or 7 key types of financial data (GL, Labor, Revenue, Planning, Procurement, Tax & Statistical Drivers) that an organization uses in its financial and management reporting process.  In future posts, I will provide my thoughts on one way to integrate this information in a way that helps CFOs take the next step in becoming Strategic Partners to the business.

ISA Consulting, a premier Corporate Performance Management consulting firm based on the East Coast is offering a a complimentary Performance Management Workshop to qualified organizations.  In this two day complimentary workshop, ISA’s advisory and performance management consultants will review your existing systems and processes for budgeting, forecasting, consolidation and financial reporting and then provide you with a Gap/Opportunity Analysis; Best Practices Assessment; Implementation Roadmap and Business Case.

ISA Consulting is a leader in providing management and technology consulting services.  ISA Consulting was also favorably evaluated in a recent AMR Research report.  ISA has significant expertise with all Hyperion and Cognos tools as well as data integration experience with the SAP and Oracle ERP platforms.  In addition, ISA has an Advisory Services practice that focuses on the needs of finance and assists CFOs with becoming better strategic business partners.

To take advantage of this offer, please contact either ISA Consulting directly at pmworkshop@isaconsulting.com or you can email me at glenn@glennhafler.com.  Further details of the offering are provided below:

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“Handling Clients’ International Expansion” was written by myself and Joseph Riccie, a director with Baker Tilly Virchow Krause, LLP and was published in the September/October 2009 issue of the New Jersey CPA, the magazine of the New Jersey Society of CPAs.

Often, Finance’s role in expansion is limited to tax planning and in some cases, Finance isn’t involved in the process until key decisions have been made.  In this article, we examined various areas where the Finance can, and should, be proactive in the process.  The areas discussed are by no means inclusive, so feel free to discuss other areas where Finance can add value in international expansion.

For easier viewing, please click on the download button below the viewer and a new window will open.

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Thanks for stopping by.  I hope that you find Thinking from “Outside the Box” an interesting discussion of thoughts and strategies that you can apply as you see fit.  I welcome your thoughts and comments as well.  They are essential to increasing the value of the information provided.  The About page contains some additional information about me and please feel free to reach out and connect on LinkedIn and Twitter.   Thanks again and I’m looking forward to connecting.

Perhaps a strange title to talk about process and controls, but hang with me for a second.  As I engage with organizations of all sizes and talk about the issues and problems facing them, on the surface, everything looks fine and they are just gliding across the water like nothing is amiss.  But dig down and go under the surface, and you are likely to find frantic activity, just to keep up.  So there you have it, like a duck gliding across the pond with the greatest of ease but paddling like heck to keep up, so are most organizations today.

And is it any surprise?  Given the across the board cuts needed to survive, there are simply fewer people supporting operations today than there was last year at this time.  This brings me to a very interesting question.  As top line growth returns, are companies more likely to hire back support personnel, try and support revenue growth with the existing cost structure, or a combination of both?  Obviously it is too early to know for sure, but this is something that organizations need to begin thinking through.

I suspect for most it will be a combination of selective hires and a desire to post enhanced profits.  Kind of a “cake and eat it too” approach.  What is less clear is what the triggers, or drivers, are that will nudge companies to take action.  I think it will be very interesting to see what happens in the 3rd and 4th quarters as auditors begin to test the controls that were overly documented during the Sarbanes-Oxley activities of the past few years and designed for support organizations 20% larger than today.  I don’t believe for a second, that all of the documented control activities are actually being performed and this could be a problem for some companies.  It will be interesting to see what remediation activities will need to occur.

The better option for most, is to begin capturing future cost savings by changing existing process and related controls to fit the realities of the “new” world.  Lets face it, there was, and to some extent still is, a lot of excess waste in most organizations.  You never know what you can live without until you don’t have it, and the same is true in the business world.  I believe that it is very unlikely that companies will revert back to mid-2008 staffing levels.  As a result, organizations need to begin now to optimize existing process to the “new” world staffing levels and begin to capture future cost savings.

I recently had a discussion with a CFO of a major entity.  During our discussion he mentioned that they were looking at the overall revenue base and found that the bulk of their revenue came from just a few customers.  Further, they had build a significant support structure to generate and manage that revenue.  Not surprising when you think of the 80/20 rule which holds time and time again.

The reality is that this is likely true for many organizations.  It is hard to turn away business, but if sales incentives or specific revenue targets have been established, it is very likely that some of the revenue generated is at less that optimal margins.  The reality is that you may losing money on some sectors of your business.  Here are a few areas I would look at to begin to understand customer profitability:

• Cost of sales is the most obvious place to start.  Take a sample of your customers sales and apply all direct costs that you can think of including material, production, direct sales costs, including commissions paid.  Note I said sample, the important thing is to begin to get directionally correct information.  You can refine it later if needed.
• Consider the impact of overhead costs that are spread spread over all customer activity and make adjustments to the profitability of remaining customers if necessary.
• Then examine indirect or partially direct costs in the equation.
• If customers are extended credit, look at the cost of capital associated with carrying the receivable as well as the cost of the credit organization.
• Once you have a general understanding of your costs, take a hard look at your pricing strategies to see it gains can be made to your margins.
• There are likely more depending on the specifics of your business, but this will give you a good start.

While there are many strategic reasons for retaining customers, you may find that it is prudent to sell or unwind your activities with certain groups of customers.

Revenue generation ideas are hot topics right now.  But revenue generation doesn’t always mean greater profits.  Reviewing your revenue base is an important exercise that should be conducted regularly.  Pruning the bottom 20% of your revenue base can increase your margins and net income.  While this sounds easy, the problem is in actually measuring the total cost of service and that goes well beyond direct costs.

First start with the information that is readily available and trustworthy.  Revenue is usually always available for each customer.  Rank your customers using several factors such as the strategic importance to your organization, product segmentation, geographic markets and other factors of improtance.  Start to look at which customers end on top, and which are consistently at the lower end of the list.  This will begin to generate a lot of questions for discussion.  Next we will look at the challenges with associating costs.