Mary Driscoll wrote another valuable piece for CFOs. Her article in CFO.com – Metric of the Month: Finance Function Costs – gets to the chase on a subject that many Chief Financial Officers face. CFOs have told me that it is hard to be a corporate leader in cost reduction while they need to come back to request and get approvals for increasing their costs to be a better business partner across the business, operationally and strategically.
You should read the article.
I’d like to address the question Mary asked as she ended her article. In discussing the management of Finance costs, which are composed of People, Process and Technology, Mary asks – What is the right proportion?
Mary believes it is up to each CFO to figure out.
But most CFOs are hard pressed to figure it out. If it was easy, the proportion of costs wouldn’t look like this graph.
So where should a CFO start?
- Figure out what you’re actually doing. You can hire a consultant to figure it out, but you could, with a little effort and honesty (with yourself), can see what your Finance team is actually doing.
- Benchmark and compare. APQC benchmarks are a good place to start, and there are others that exist as well. While they may not be directly correlated to your business.
- Prepare a plan. Any plan to improve Finance is a good plan. It is certainly better than just letting things be in Finance. “That’s the way we’ve always done it” is not a plan.
- Aim for low hanging fruit. When you benchmark and compare, you’ll see obvious areas for immediate improvement. Identify them and act on them.
- Communication & Leadership. CFOs sometimes forget that their leadership role requires that they stand up and stand out. Communicating what you’re doing in a refined and positive way to your team and your company will help get the support you need to make your plan a success.
What about People, Process and Technology? Here is what CFOs need to keep in mind.
- Bring on the right People. Bringing on and developing higher level value adding senior finance talent will help you reduce the costs of lower level transactional staffing costs.
- Rejig Processes. Does your Finance function have to run like it always has, even though your business has changed significantly in the recent past? If you are running Finance like it’s 1999, and your business looks nothing like it did in 1999, processes need to be significantly updated to fit.
- Technology is always a challenge for Finance. Systems, software and other technology solutions can be expensive. Unless your enterprise is going through a wholesale ERP change, focus on Processes and People first. Once that part of your plan is in place, you will have the right Finance ecosystem and culture to properly take advantage of. Dollars on technology needs to be well thought out and prepared for (on the People and Process side) before making significant investments.
Reducing the costs of Finance while improving its impact on the business is possible. Studies show this. While it may sound counterintuitive to someone who has not done this before, learn from the literature.
And if you’re still not sure, ask your CFO Peers about their success stories in making this work.