Know Thyself and Thy Partner -- and Keep It Simple.

AuthorRosengard, Jeff

Complexity, at least in the financial world, is often the enemy. Multiple general ledgers, inconsistent data definitions, disparate operating systems and redundant processes can add layers of unnecessary and potentially confusing information. Complexity too often stifles communication, keeping critical information from those who need it most.

This same complexity can be a major obstacle to any successful merger or acquisition. It will certainly be one of the first dragons the combined America Online/Time Warner organization will have to slay. The more functional -- or dysfunctional -- complexity an entity has, the more cost it will incur up and down the value chain. When two companies agree to integrate operations, many times the biggest threat to their collective success is what each brings to the table in terms of egregious complexity. Look closely at some of the major mergers that have failed during the past decade; repeatedly you'll find complexity proved too much for either side to overcome.

An exacting look at best-practice finance organizations clearly outlines the problems -- not to mention the costs -- that stem from complexity. World-class companies have successfully standardized and simplified their systems and processes to turn around management reports faster, causing a ripple effect throughout the organization -- from vastly improved speed to the quality of managerial decision-making.

For example, the number of budget line items can hamper management reporting cycle times. The typical company, according to Hackett Benchmarking solutions, budgets for 230 line items, vs. 40 at first-quartile companies -- and as few as 15 at world-class companies. Too much detail in a report not only slows the process, but increases the probability of error, affecting the speed and quality of decision-making. By having better standards, managers at world-class companies spend less time searching for data and more time focusing on value-added initiatives.

Management reporting cycle times largely depend on the closing of the accounting books, since most companies use the general ledger as their key information source. World-class companies like Cisco Systems have automated processes and streamlined systems to close their books and produce reports in no more than 48 hours. The average company, on the other hand, takes nine days to close and report. Considering that most companies are organized to close their books only monthly, a problem can fester...

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