Slash and Earn.

• Author: Roth, Richard T.
• Position: Cutting corporate costs

Addressing the corporate mandate to cut costs is only part of the high-performance equation. To truly be lean and mean, you also have to be effective.

Throughout the 1990s, many companies across the globe searched for and found ways to operate lean and mean. They aggressively pursued across-the-board cost reductions and improved operational efficiencies. In fact, this collective effort is at least partly responsible for driving the longest U.S. economic expansion on record. An expansion and growth, it's worth noting, that's consequently forced U.S. Federal Reserve Chairman Alan Greenspan to transform the business models he and his staff use to monitor and manage the domestic economy.

Chairman Greenspan isn't alone in addressing newly found demands for change. The typical finance department, based on the latest ongoing finance function benchmark study by FEI and Hackett Benchmarking I solutions, is experiencing a similar scenario. Senior management called for lower costs and greater efficiencies in the early-to-mid '90s, and that call has been heeded to a certain extent. The typical finance organization has successfully slashed function costs by nearly half, from an average of 2.2 percent of revenue in 1988 to 1.15 percent in 1999, with a drop from 1.4 percent just since 1996. That's substantive and should be reason for celebration.

However, it's a mixed report when you step a little farther behind the numbers. Despite the marked overall improvement, the finance cost reduction rate has lagged recently for the typical company, having dropped only 4 percent since last year, a considerably slower annual rate than earlier in the decade. This sluggishness indicates most companies are nearing a crossroad.

The typical finance function gets an even lower performance grade when you consider the second part of the equation: Has it also been lean and mean in its ability to drive greater value creation with fewer resources?

Is Less More?

The typical finance department has seen considerable efficiency gains. Productivity in number of remittances processed annually in accounts receivable per full-time equivalent (FTE) employee is up 29 percent in the last three years, for example. The number of fixed assets tracked per FTE annually is up a startling 120 percent in the same period. However, despite these individual process gains, marked improvement in overall functional effectiveness has eluded the typical finance organization. The cost has been driven out and productivity, for the most part, has increased; yet ascendancy to the role of true business partner hasn't always happened. And lean and mean hasn't automatically translated to best-in-class. So where does the culprit lie?

Technology - or perhaps more appropriately, the unrealized payback from technology is partly to blame. In the recent past, demands for efficiency were often answered with substantial IT investments, which needed quick implementation to capture an immediate return. More often than not, either the need for a speedy return or solving Y2K-compliance issues resulted in technology solutions being plugged into finance departments without adequate integration to systems and processes. Supposed panaceas...