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How safe is your job?

A benchmarking study discloses how the profession is changing and which job functions are at risk.

Conventional wisdom holds that accountants in commerce and industry somehow are immune to the current epidemic of corporate "rightsizing," in which companies pare work forces and reorganize business units to create leaner and meaner enterprises.

The conventional wisdom may be wrong. In the last few years, the Bureau of Labor Statistics reports, tens of thousands of non-managerial bookkeeping, accounting, auditing, payroll and billing jobs were eliminated. While some of these jobs were automated, most of them simply were scratched from the organizational charts because they were seen as low-value activities irrelevant to the trimmed-down organization.

This article examines the trends emerging from the wave of rightsizing or, as it used to be called, "downsizing." lt also suggests how accounting staffs will be affected by these changes and offers company leaders a tool for analyzing their operations with an eye to rightsizing: benchmarking.

While these trends in financial and accounting staffing obviously are of vital personal and professional interest to accountants who work in commerce and industry, CPAs in public practice also should take note: These shifts in human resources will affect the way CPA firms deal with their clients.


The experiences of Ford Motor Co. and Digital Equipment Corp. show how rightsizing has affected the profession. Each company faced highly publicized financial problems and each acted to correct them. Between 1980 and 1986, Ford cut overall employment by nearly a third, to 350,000 employees from 500,000, emerging a much stronger company. But during the same period, its financial and accounting staff was slashed by half, to 15,000 from 30,000, and in one key manufacturing segment, the accounting staff was cut two-thirds, to 700 from 2,200.

Digital's experience was similar. Its overall financial and accounting staff was slashed to less than 4,000 in 1991 from 6,800 in 1986; by 1994, the goal is to cut staff to fewer than 3,000. Further, the accounting staff that supported a major sales and marketing group comprised 1,500 persons in 1987; in 1989 it was cut to 1,000 and in 1992 to 800. Yet, according to Digital, even with 700 fewer employees, no value-added work fails to get done, and several senior managers believe the staff still could be cut further.


While rightsizing has eliminated vast numbers of jobs in the economy as a whole over the past decade, financial and accounting departments still retain relatively large staffs. With some exceptions, accountants by and large were not affected by rightsizing as severely as other employee groups. That apparent discrepancy raises some obvious questions: Was the recent rightsizing a short-term phenomenon? Will accounting employment ranks begin to rise again? Or will rightsizing continue to trim them?

This article can't answer these questions authoritatively; not enough information is available and reorganization strategies still are evolving. However, I believe not only that management accounting staffs will face more layoffs but also that the role of the management accountant will change. Accountants will have to learn to add more value to their work, while they do so in less time and with fewer people.

What's behind these predictions?

For years, not enough was known about how businesses in general organized and managed their financial and accounting departments. As a result, it was difficult to measure the departments' efficiency in practical terms. For example, there were no reliable data on how much businesses spent on their in-house accounting functions, what optimal staff levels were for these functions or how financial and accounting departments could be structured to support the overall organization most effectively. Consequently, businesses weren't able to determine whether their accounting costs were out of line compared with those of other companies, whether key accounting functions were over- or understaffed or whether in-house financial and accounting departments provided the information needed to set short- and long-term corporate strategies.

By providing benchmarks for purposes of comparison, the two studies described below have begun to fill in the gaps. The insights they have yielded and the trends they have uncovered strongly support my predictions.


In 1986, 16 major U.S. companies hired A. T. Kearney, a management consulting firm in Chicago, to undertake the first comprehensive survey of their in-house accounting costs. Before the study was completed in 1988, the number of sponsors had grown to 26.

According to the survey results, which are summarized in exhibit 1, page 76, in-house accounting costs varied dramatically, from 0.9% to 3.6% of revenue and from 1.5% to 11.8% of employment. Analysis of the data revealed some interesting relationships between the cost of accounting functions and how a business is organized. As shown in exhibit 2, page 78, in-house financial and accounting costs correlated highly with two elements of organizational structure: whether a business is centralized or decentralized and whether its accounting system is oriented around profit centers or functional departments.

This study's key insight is that organizational structure appears to account for most of the variation in accounting costs. Such costs are lower for companies that are centralized and organized by department. Conversely, they are higher for companies with autonomous business units grouped into profit centers. The study disclosed that IBM, which is centralized and organized by function, was at the bottom of the curve, while General Electric, with autonomous profit centers, was at the top.

However, this survey is only a first step in understanding the relationship between accounting costs and organizational structure. One problem with the survey was that it provided a static view of just one year's costs. Another shortcoming was that the data were aggregate across all financial and accounting functions and thus yielded no insights into specific areas, such as payables, receivables or payroll. Finally, the study didn't establish benchmarks (the management academic's jargon is "best practice") from a cost-benefit point of view for the cost, staffing or organization of any particular function.


Another study, begun in 1990 and still ongoing, addresses these limitations by comparing the financial costs (in terms of employees, facilities and systems) of 27 specific functions for 53 leading corporations and government units. The study is being conducted by the Hackett Group, a Hudson, Ohio, management consulting company. The Hackett study covers the years from 1988 through 1992 and provides the most comprehensive information available on how financial and accounting costs are changing, year by year, in these companies.



Companies interested in participating in the Hackett study - which requires them to disclose, in confidence, details about their in-house accounting activities - should contact John F. Morrow, director, American Institute of CPAs peer review programs, at (201) 938-3011.

The goal of the study is to expand a database on key in-house management accounting practices, with a view to develop benchmarks for these activities. The information gained through the study will aid companies in comparing their operations with other companies in the study.

The results strongly suggest the substantial accounting staff cuts at Ford and Digital are not isolated occurrences. In fact, the Hackett study found that, whereas the overall average for accounting and financial costs as a percentage of revenue had been 2.2% in 1988, by 1992 it fell 20% to 1.8%. Similarly, the average accounting head count per $1 billion in revenue dropped to 220 in 1992 from 270 in 1988.


Combining data on head counts and spending levels with respondents' judgments about the expenditures' cost-effectiveness, the Hackett study concluded that a "world class" in-house accounting organization - the one with the lowest relative staff level and the lowest relative accounting costs in the study - in 1990 consumed about 1% of revenue with about 160 employees per $1 billion in revenue. Thus, an average company with $1 billion in revenue in the sample, even after shedding 50 accounting personnel between 1988 and 1992 and reducing financial expenditures from $22 million to $18 million, still had 60 more accountants and $8 million more in costs than a world class company.


The Hackett study probed deeply into actual systems, procedures and controls in various accounting functions to highlight the differences between the "average" and the world class company. The table below highlights the actual range in productivity measures for four common accounting functions as of 1990:
 Cost per unit
Accounting function Measure Average Best in survey

Payables Invoices $8 $0.98
Receivables Remittances 16 5.60
Travel and Expense
entertainment reports 20 1.75
Payroll Paychecks 6 0.72

Although these aggregate comparisons are intriguing, the real eye-opener for almost any company is how its accounting costs compare with those of the world class companies. Making such a comparison can be a humbling experience for a corporate controller. For example, Digital is the leader in the Hackett study in payroll processing. Its 18 payroll employees pay about 70,000 workers in North America every week. That's more than 200,000 paychecks per processing employee a year. This is an amazing figure for persons familiar with conventional payroll systems. In the Hackett study, which is composed entirely of businesses that are very serious about improving productivity, the average for 1990 was only 20,000 paychecks per processing employee.

Certainly there are skeptics who question what can be learned from benchmarking and who think dramatic reductions in head counts or costs are impractical for what they consider to be well-run companies. Digital's experience with payroll processing is a powerful antidote to such skepticism. Management accountants can find some comfort in the fact that no company in the Hackett study was best in all functions. Thus, one of the attractions of benchmarking is that every company has something to learn - and something to contribute.

The most interesting insights are suggested by exhibit 3, page 80, which relates the number of staffers with where they work and what they do. These are the key insights implicit in the comparisons:

* Transaction processing is moving back to central locations, reversing the trend toward decentralization of the past 30 years.

* Centralized transaction processing and report generation will require only about a third as many people as they do currently. This is the result of what's called "shared services," in which an activity such as accounts payable, which previously was performed by separate groups at a company's multiple divisions, are provided by a single centralized group; thus the divisions share the services of the group.

* Field jobs in which business analysis is the focal point are likely to expand, perhaps by as much as a third. Business analysis activities go beyond data collection; they collect and then assess data from several management areas - finance, accounting, marketing and production.

* Accountants displaced from transaction processing jobs are not likely to be candidates for the new business analysis jobs unless they agree to undergo extensive retraining.

* Business analysis jobs at headquarters are likely to shrink to a bare handful. Companies will move the business analysis function to the field, where the decisions are made. Not many of those displaced from business analysis jobs at headquarters will be prepared to handle this new field task.


An effective first step for managers who want to streamline their businesses and to add more value to their products and services is to prepare a table like the one in exhibit 3 - with the numbers under "average" representing current head counts and the numbers under "best" the goals. The idea is to use the numbers as the basis for developing a new strategy for deploying financial and accounting personnel.

For example, exhibit 4, page 80, presents actual head counts for two information technology businesses with which I have worked in the past year. Each generated revenues in 1992 of approximately $1 billion, which makes them roughly comparable to the companies in exhibit 3. Both are highly autonomous segments of much larger corporations. But their financial and accounting departments' agendas for change are quite different.

Business A has 115 persons more than the average company in the Hackett study and 225 more than the best-in-survey average. It has not yet begun the journey toward shared services for transaction processing or focused on business partnership versus score-keeping and control. Based on the success of some of the companies in the study, it's clear that expenditure levels and financial staffing in business A should - and can - be reduced significantly almost everywhere, with the exception of the headquarters transaction processing group. However, that group will need to take on all transaction processing for the business without adding personnel. While the challenge is daunting for this business unit, early successes with easily recognizable benefits should be easy to achieve - and that, in turn, should increase support for the quest for accounting excellence.


Business B's situation is very different. Its management already implemented shared services as part of a corporatewide program. Since the business is already close to the best in survey in transaction processing, management can focus on improving the business analysis function. Its problem is that it has a strong commitment to financial control, with a large headquarters staff performing business analysis; it has a long tradition of top-down planning and budgeting, frequent updating of forecasts, extensive variance analysis and extensive second-guessing at headquarters of the field-based line managers'decisions.

The challenge for the top managers in the financial and accounting groups at business B is to move the locus of power in business analysis closer to the business itself. This requires much more attention to strategically relevant cost analysis and cost management programs. It means shifting the emphasis toward proactive decision support an d away from the traditional - reactive - control cycle, which moves from (1) long-range financial planning to (2) annual profit budgets, (3) monthly profit budgets and finally (4) monthly variance reports. Business must eliminate 210 financial and accounting jobs to match the best-in-survey companies - 175 in transaction processing and 35 in corporate analysis. It also must dramatically restructure another 110 jobs (45 in corporate transaction processing and 65 in field analysis). Fewer changes in staff are required for business B; it needs only to move about 30 to 35 people from business analysis jobs at headquarters to decision support jobs in the field.


The purpose of these comparisons is not to suggest there are easy ways to enhance accounting productivity or easy solutions to the challenges of reorganization in either business. Rather, it is to show that using available benchmarks gives both companies' managers a good start toward enhancing the productivity of their accounting groups, albeit in very different ways.

Clearly, rightsizing is a business strategy that's here to stay. Benchmarking is one way to start the process of assessing the urgency for change and identifying the most likely areas for elimination or re-organization. Information available through the A. T. Kearney study and the ongoing Hackett stud.y represent a good starting point for identifying the best way to proceed.


* MANAGEMENT ACCOUNTANTS may not be immune to the current epidemic of corporate "rightsizing," in which companies pare work forces and reorganize business units to create leaner and meaner enterprises. In the last few years, vast numbers of nonmanagerial bookkeeping, accounting, auditing, payroll and billing jobs were eliminated and further cutbacks are expected. * TWO COMPANIES, Ford and Digital, are examples of how sharply accounting and financial jobs have been eliminated. * IT'S LIKELY THAT rightsizing is here to stay. Management accountants who remain will have to add more value to their work in less time and with fewer people. * IN A STUDY OF in-house accounting costs by A. T. Kearney, the following insights were gained: The more company is centralized and the more it's organized by departments (rather than profit centers), the lower its accounting costs are. Conversely, the more autonomous its business units, the higher its costs are. * THIS INFORMATION is being used to develop preliminary benchmarks of accounting costs and employee head counts. A more comprehensive study, undertaken by the Hackett Group, is under way. Companies are invited to join.

JOHN K. SHANK, CPA, PhD, is the Noble Professor of Managerial Accounting and Managerial Control at the Amos Tuck School of Business, Dartmouth College, Hanover, New Hampshire. He is the chairman of the American Institute of CPAs management accounting executive committee.
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Article Details
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Title Annotation:accounting positions
Author:Shank, John K.
Publication:Journal of Accountancy
Date:Oct 1, 1993
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