Transforming Finance into a Competitive Weapon.

• Author: Rosengard, Jeffrey S.
• Position: Statistical Data Included

There's plenty of good news for finance departments these days. Investments in best practices and technology in the past decade have helped companies across the globe slash costs and significantly trim staff to levels that would once have been deemed unthinkable. The typical finance function's costs have dropped nearly 50 percent, from an average of 2.2 percent of revenue in 1988 to 1.15 percent today.

The bad news is that data indicate that even the world's largest companies have yet to truly leverage investments in technology or realize its rewards. Yes, it's true that most finance functions can rightfully call themselves lean and mean after a decade of driving down costs and improving productivity, both of which were mostly fueled by the labor/technology exchange that marked the 1990s. The typical finance organization in the Hackett database now averages 122 full-time equivalent employees per billion dollars of revenue, and first-quartile companies have no more than 108.

Yet despite the marked improvement over the past decade, the typical finance organization can't claim to be truly efficient. The rate of cost reduction at a typical company has lagged lately, having dropped only 4 percent since last year. That indicates that most companies are nearing a crossroads, raising a question: Do finance managers continue slashing department costs at the risk of harming the rest of the enterprise; or do they commit themselves to a true, comprehensive business transformation process that finally moves the function's role from transaction processor to value generator?

Identifying opportunities

Opportunities clearly abound for finance departments to become strategic partners in their organizations, especially as companies focus on creating greater shareholder value through mergers and acquisitions and globalization. Ironically, however, Hackett's recent benchmark study tracking the finance area reveals that highly qualified, highly paid professionals and managers have yet to leverage best practices and redesign their organizations to focus staff on strategic imperatives. Data show they continue to allocate sizable chunks of time to transaction processing, as opposed to value-added activities - like strategic planning and reducing business risk -- that strengthen an enterprise's competitiveness.

Finance managers, on average, spend 47 percent of the workday mired in transaction-processing activities, a figure that has risen by an alarming 15 percent...