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Friday, July 1, 2011

CFOs are Ideal Leaders for Transformative Change


For executives at startup companies, maintaining open channels of communication between departments is often as easy as walking down the office hallway to ask a question.

But as companies grow in size and disperse geographically, departments can become silos or islands of information. Inter-department communication can break down, creating inefficiencies such as longer cycle times or error-prone manual data manipulation, all of which lead to a general feeling of having less visibility and control over the business.

Reconnecting the departments so information can flow through the company easily and accurately is a change-management initiative that encompasses people, process and technology. The CFO is the ideal leader to bring these components together for effective change. As the key company stakeholder for all the information that flows into his organization, the CFO has the responsibility, incentive, and the means to help make it happen.

A CFO-sponsored Enterprise Resource Planning (ERP) solution optimization initiative can be the primary means to drive this change as the company grows. Be it a minor tune-up or a full replacement, such an initiative purposefully creates the opportunity to re-open and re-establish communication channels between departments, re-visit end-to-end business requirements, and provide a more seamless and timely information flow via defined processes and automation.

“Success is as much about people and process as it is about systems,” said Tim Hourigan, partner at Armanino. “The CFO is the natural leader to affect company-wide change because his finance organization is dependent on the other departments for reliable information. With our clients we’ve seen the CFO have a transformative impact by stepping into this role and sustaining it with the help of designated cross-department, end-to-end business process owners.”

The ROI can be significant, so it’s critical that the CFO understand where some of these opportunities exist. For example:

The connection between the sales department and the finance department: Poorly structured contracts can create an unnecessarily high burden on the CFO organization around recognizing revenue. CFOs need to ensure that the sales team is writing contracts and structuring deals that can be easily supported by the existing revenue recognition processes and systems. There are often multiple ways to support the sales team in doing what is needed contractually to sell while still avoiding unneeded, perpetual administrative costs for revenue recognition, invoicing, bill inquiries, or a lengthened close of books process.

The connection between the procurement department and accounts payable: The flow of information from procurement to accounting-accounts payable can bottleneck as well as accumulate hidden costs.

  • CFOs can benefit their organizations by providing well-defined processes and financial policies for everything from reporting and ledger code creation to revenue recognition that can be easily referenced by departments. In turn, these can often be configured into and enforced via the ERP solution. This will remove the ‘shadow’ costs of backtracking to fix problems after those problems reach accounting.
  • Aligned with this, organizations that engage many different third-party service providers (such as vendors or subcontractors), can create Statement of Work (SOW) templates with predefined business terms and conditions (e.g. level of detail needed on the invoice) to facilitate subsequent back-office processing and reconciliation.
  • Creating SOW templates can also help organizations avoid overburdening their legal department with contract review requests. To prevent this bottleneck, CFOs can help their organization create a threshold of materiality for when a contract needs to be reviewed by legal. All contracts under a certain dollar figure, for instance, could be routed around legal and left for good faith negotiation between the business buyer and service provider (aligned with the organization’s predefined contract/SOW template).

Measurement: An organization can’t improve what it can’t measure. Once roughly defined and repeatable business processes are in place, CFOs should seek to establish performance measures of internal profitability by end-to-end process. All or many of these measures can often be easily configured into and objectively tracked by the ERP system. The CFO might encounter some internal resistance against process metrics with the complaint that the company’s early growth is too uneven or fast for such measurements to have meaning. However, it is often the productivity loss through inefficient processes that can hamper a company as it scales up. So even though business growth may be lumpy or exaggerated, CFOs want to strive for process metrics as soon as possible.

This kind of business leadership across the enterprise is a natural and needed function for CFOs. In fact, most CFOs have a strong desire to change their own organization’s role within the company to that of business accelerator rather than a score keeper. A recent survey of more than 200 San Francisco Bay Area CFOs and finance executives showed that while only 8% of respondents reported that their finance organization is viewed by their company as a business accelerator, 63% aspire to be viewed as such.

Proactively creating and maintaining connections between departments and ensuring good information flow across the company is an opportunity to provide that strategic leadership. Achieving the improvements means shepherding the organization through inter-departmental change that brings together people, processes and technology.

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