How to join the competitive wars.

The Bell System divestiture put AT&T squarely into a fiercely competitive business environment. The AT&T financial organization had to bring the real economics of the business to the decision table.

James J. Meenan

Vice President & CFO 

Communications Services

AT&T

Corporate finance departments today face many issues. They are accomplishing more with fewer resources. They are providing more sophisticated financial services to decentralized business units. They are reducing their personnel by increasing their use of computer technology. They are more involved in business operations, as they provide information to help fight competitive wars. In sum, they are doing things differently.

These developments were cited in Changing Roles of Financial Management, a recent study by Financial Executives Research Foundation (FERF). AT&T played a part in this study because we have obviously experienced major changes in finance since divestiture.

Before divestiture, AT&T's finance organization focused mainly on the accuracy of data to support external reporting and rate-of-return accounting with the state and Federal regulators. This was the right focus for that environment. It was marked by a relationship with operating management that was, at times, difficult and less than fully effective. An example of the relationship and how it worked was our monthly results meeting. The meetings were held about the fifteenth work day after the close of each month. The financial people would come into each meeting with a new set of view graphs, and all the operations people would be saying: what are they going to present today?

That's how we used to run AT&T. Finance people did not confer at a table with operations people. They were green-eyeshade accountants reporting a set of numbers. Like the other companies in the FERF report, however, AT&T's finance functions have gone from being command and control functions to being partners in business operations.

How has this new relationship changed the character and cost of the financial function? Many of us have reallocated our resources. We've taken our people from payroll, accounts payable, or account analysis and placed them in strategic business units. We put those people in the front lines, and at the same time consolidated our own staffs. The result is that financial control has become a responsibility shared by the management team throughout the company.

So finance is becoming streamlined, but it is also becoming sophisticated. It is becoming more product, more customer oriented. It's introducing state-of-the-art computer technology. It's moving from administrative tasks to more sophisticated analysis.

Carrying squirt guns

At AT&T, we've undergone several restructurings as management searched for the best market-oriented framework. This culminated in early 1989, when we divided the company into 22 business units. And each business unit president formed as many as 10 strategic units within his own unit. Thus, we began to focus on customers, or on a particular product or service within those markets.

How did this affect finance? You've probably heard the saying: it's fun to run a business if you don't have an income statement, a balance sheet, or a cash flow statement. Well, we had none for most of those 22 business units. Our financial systems were based on functions-engineering, sales, manufacturing, and so on-but nothing on business units. We were in a war with our competitors, and we were carrying squirt guns. So we quickly had to start getting income statements and balance sheets for each of those 22 business units.

Here is where the "tone at the top" becomes important. Finance needs to have a CFO for each business unit sitting at the decision-making table. When the president of a business unit wants to consider a merger or acquisition, he has to have someone who knows the financials sitting at his side. Of course, the CFO has to earn the right to be there.

These CFOs at AT&T have what we call a dual accountability. That is, they have two bosses. They have the business unit president, and they have the CFO of AT&T. They are true team players.

This involves a complete change in mindset. At AT&T, we were used to a regulated environment, where we did a lot of averaging. We serviced the universe. Some of us didn't even know the difference between cost and price. In the competitive world, you don't average; you must know your real costs. You must know the cost of a long-distance network, of a manufactured product, and of your sales force. You have to bring real economics to the decisionmaking table. We had to get smart-fast.

At AT&T today, there is no longer the rigidity there used to be. Teamwork is replacing command and control. The finance function is working with the business units. Management information is brought to the decision table. Functional boundaries are disappearing. The distinction is fading between staff and line, between theory and practice.

A changing business environment requires changing norms. It requires more sophisticated people and more sophisticated training. At AT&T, divestiture has brought a far different environment to the world of finance.