The missing link in re-engineering.

• Author: Rosengard, Jeffrey S.
• Position: Treasury management - Cover Story

Why isn't your finance department's re-engineering project making the gains, you'd hoped for? Maybe you should ask your treasurer.

By now you've probably heard a lot about financial re-engineering. You probably even have a number of change initiatives already under way in your organization. You know the challenge of re-engineering is not simply to tinker with functional processes, but to rethink the very role of the finance staff. You know the vision of world-class finance is one of driving down transaction processing costs and freeing up time for more valuable kinds of analysis. And you know many companies - perhaps even your own - are making significant strides toward that vision.

But what you probably don't know is that even though companies have made noticeable improvements, they may nevertheless be missing out on the full benefits of re-engineering finance. The reason? In the rush to transform core transaction processes like payroll, accounts payable, accounts receivable and travel and entertainment, few companies have involved the treasury side of the house, except as an afterthought. We estimate that somewhere between 70 percent and 80 percent of finance re-engineering projects ignore the treasury in the initial stages of the process. Short term that might not be a hindrance to making some process changes, but long term you risk not optimizing - or not realizing at all - the benefits that re-engineering can bring.

In The Hackett Group's first major benchmarking study of treasury best practices, we found that finance can increase cost savings and productivity gains by as much as 50 percent if the treasury is an integral part of the re-engineering team. As finance groups have begun to re-engineer their transaction processes, they've discovered their treasury departments' tools and techniques, especially those that involve electronic linkages to customers and vendors, are critical to implementing best practices. They've realized the treasury can provide more value to finance than simply cash and risk management, and they've recognized the benefits from the treasury's involvement come not only from additional labor and overhead cuts, but from reductions in fees, more efficient business processes and enhancements of cash flow.

"If I weren't a member of the team, the others might have known to consult treasury about things like payment mechanisms and lockboxes," says Rick Dudiak, who was the manager of cash management services and support before becoming a senior team member in the financial re-engineering efforts at Westinghouse Electric in early 1994. "But it was a big advantage to have been there on a full-time basis. I had expertise in the products and services that are available to achieve the team's re-engineering vision. My involvement shortened the learning curve and implementation, and it helped ensure that finance didn't come up with suboptimal solutions."

PERCEPTION VS. TRUTH

Most financial executives know that radical change is required to successfully compete in a global marketplace, to meet stepped-up demands for cost control and to provide added value to the rest of the corporation. The problem is that finance is an expensive function, and its high costs are driven by complex processes, excessive controls, organizational fiefdoms and the lack of technology investment. Plus, finance professionals hardly have enough time to add value, because they're bogged down with mundane transaction-oriented and management-reporting tasks. The vast majority of finance's internal customers see the department staff as hard workers, historical reporters and corporate cops. In fact, in a 1993 Hackett Group survey, only five percent of CEOs said that people in finance are real business partners in determining the strategic direction of the company.

Re-engineering finance, in turn, has typically involved consolidating accounting centers, standardizing policies and practices across business units, simplifying processes and eliminating outdated or irrelevant activities in order to improve the flow of work. In addition to providing significant cost...