Productivity: small changes add up.

• Author: Heitman, William
• Position: Cover Story

Finding itself lagging its peers, who had years earlier migrated from manual ledgers, one of the largest international insurance companies began deploying technology in 1999 to automate its general ledger--a move driven not by actual operational problems, but by potential ones. The manual ledger system relied on numerous handoffs of spreadsheet data, and with each handoff the probability of human error increased.

With implementation of the electronic ledger system completed throughout the company's U.S. and European operations a couple of years later, the finance group experienced modest productivity gains. But where, questioned executives, was the great leap forward? While acknowledging the modest gains, senior management still saw room for significant improvement.

So, in 2001, the company initiated an intense, two-month effort to analyze its key finance processes, to develop a list of best practices based on external benchmarking, and to design a plan to implement those improvements that would result in the largest, quickest productivity gains. The result was a list of 172 best practices, based on benchmarking research involving 40 of the company's peers, that served as the foundation for hundreds of specific, activity-level improvements. The most striking result, however, was that the great majority of improvements required no additional technology--and within a year, the finance group had reduced costs by 17 percent.

This is not an isolated experience. Lower-than anticipated returns on large technology projects have many CFOs asking the dreaded question, "Is that all there is?"

Until recently, investment in new technology was regarded as the primary way to increase productivity. Now, however, strained budgets have placed CFOs under the gun to streamline operations, cut costs and enhance service levels without spending a lot of money up front. This is putting enormous competitive pressure on companies and the senior managements charged with holding down costs.

One effect of all this attention on cost control is that managers are becoming much savvier about how they spend their...